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Which brings us to the percentage of earnings being paid out in dividends. So, the question may be, "Do I want short-term profit or long-term gain?" The role of dividend payout ratio If yield is low but DGR is high, you might be in the beginning stages of a company whose stock will pay off down the road. That's because high yield typically comes from established but slow-growing companies, churning out lots of profit. On the other hand, if you are near retirement, growth won't be as important as yield and payout ratio.Ī high dividend yield may signal a company that's not destined for a lot of growth. If you are just starting out, you may prefer a high dividend growth rate, even at the expense of dividend yield or payout ratio. The relationship between metrics will help you decide if a stock is not only a good dividend stock but whether it's good for you. Match the metrics to your investing style

75% to 95% or higher may mean the company is borrowing to pay dividends, a sign a dividend cut or suspension may be in the works.īefore you reject a stock because it doesn't have the "right numbers" on all three metrics, consider how those metrics work with and against each other.Note: Slow-growth blue-chip stocks may have a higher payout ratio than younger companies. 55% to 75% would be considered high since more than half of profits are going toward dividends.35% to 55% is a sign of a healthy, mature company that has struck balance between dividends and reinvestment.0% to 35% is the mark of a young company just starting to pay dividends.So their shares don't offer much (if any) of a dividend payout. In the meantime, they're plowing most of their profits back into production and operations. These usually represent small but fast-growing companies that offer great appreciation potential - down the road. These are companies who perform well in good economic times and bad - both bull and bear markets.ĭividend stocks are most often contrasted with growth stocks. Some examples include General Mills, ABBVIE, and Duke Energy.ĭividend stocks often overlap with another equities type: defensive stocks. The best dividend stocks are also often known as blue chips, representing large, solid, well-established companies that pay the same or similar annual dividend year after year. The more profitable the company is, the higher the dividend - in most cases. The higher the payment and the more shares you own, the more income you receive. Dividends are small per-share income payments of a company's earnings or profits to stockholders.