Why dividends should count

While some are arguing that further stock market falls or a bear market lies ahead, a strange thing has been happening on the FTSE in that dividend payments for many companies have been on the rise the last 3-4 years and in a low IR, especially for savings, relatively high inflationary environment, ultimately good solid companies with a reasonable history of rising dividends should be in demand.  If the market falls further, the dividend yield will rise.

For anyone who is a long term buy and hold investor, the ideal scenario is one where over time you get both capital appreciation in a rising share price and a rising dividend payment.  The earlier in terms of their growth that you catch such companies the better.  Robbie Burns, AKA The Naked Trader, often finds future big dividend payers in the smaller company sector, but often the FTSE350 will throw up anomalies in the potential dividend payment of well established stocks especially during times of crisis.

Current FTSE100 dividend yield payers over 5%.

Resolution  9.75%

Aviva  9.32%

RSA  8.60%

BAE Systems  6.44%

AstraZenica  6.43%

National Grid  5.98%

ICAP  5.84%

SSE  5.72%

Sainsbury  5.49%

Vodafone  5.36%

Legal & General  5.15%

British Land Co  5.10%

Marks & Spencer  5.02%

The FTSE100 throws up 16 other companies paying between 4-5%.  In total, 58 companies as of writing have dividend yields in excess of 3%, which beats the best rate of interest you will get for cash on deposit in an online account with a bank, currently around 3% and only a few offer that.

FTSE 250 top 5

Man Group  17.88%

Cable & Wireless Communications  17.36%

First Group  10.86%

Beazley  8.96%

Halfords Group  8.87%

In total, 109 companies pay dividend yields as of today in excess of 3%.

So, if the markets fall further these yields are likely to rise and barring a major world depression or deflation in money printing that results in good companies across the world going under, there is great value to be had, assuming you are prepared to wait, in buying quality as early as possible.

It's not all plain sailing though.  The lists above are full of companies in unloved sectors, like Aviva and Sainsbury, while some have a high dividend yield for the wrong reason, the company is in decline for one reason or another.  Hedge fund Man Group, until recently in the FTSE100 has had its fair share of problems and a share price that has been in freefall for some time, the dividend to some degree has been maintained, but they are unlikely to pay 17%.  A few years ago, HMV was a FTSE250 stock regularly paying a 5-7% dividend, it now languishes as a penny share small cap stock, the capital value wiped out by a decline in its core products.

As always, fundamental research needs to be done in finding the best companies that are likely to not only survive, but also continue to grow both in terms of their share price and dividend.  However, technical analysis can also help in finding these companies.  It is best to start with the monthly chart to see what the long term trend is.  If it is down, as for instance it is right now for Sainsbury, you may want to wait for a sign of an upturn.  I find that the MACD indicator to be one of the better long term trend indicators available.

Data from DigitalLook