When choosing a stock look for how much it pays per share, not yield

[Smilodonfatalis]

I like to buy stocks that pay good dividends. One never knows for sure if a stock is going to go up or down, but if it pays good dividends, I at least get the feeling I'll eventually break even. (Of course, that's not always the case. I had GM and hung on to it til bankruptcy.)

I always look at how much a stock pays per share, so I know how big a dividend to expect.

I was looking at BB&Tpe preferred stock and saw that it payed a 6% yield. I looked at the past history and saw that it usually hung around $26 a share, but here lately it had fallen to $23. They're going to redeem it in 4 years at a call price of $25.

I figured, great--it pays a good yield and the chances are good it will one day again be $25 or higher and I could get some decent capital gains before they call it.

But I saw it was only paying 11 cents a share. I did the math and figured out the yield was only 2%. So I called my broker and asked about the discrepency?

The yield they show with the stock includes how much it has payed in dividends over a whole year. BB&Tpe cut their dividends by 66% the most recent quarter, and I'm sure they didn't advertise this to their shareholders. That explains why the stock dropped.

I didn't know yield was calculated by the previous year rather than the current rate. It's not such a good buy after all.

And if BB&T can't keep up their dividend payments on their preferred stock, I certainly wouldn't buy their common stock either.

 

[konradv]

If the stock dropped, some shareholders must have been informed or they wouldn't have sold. If it's true that the average investor got no advance warning, it's just another condemnation of Wall St. insider trading with large institutional outfits getting the word, but the average guy getting left out in the cold.

 

[Smilodonfatalis]

If the stock dropped, some shareholders must have been informed or they wouldn't have sold. If it's true that the average investor got no advance warning, it's just another condemnation of Wall St. insider trading with large institutional outfits getting the word, but the average guy getting left out in the cold.

I think the stock dropped after they cut dividends.

 

[OohPooPahDoo]

BB&Tpe cut their dividends by 66% the most recent quarter, and I'm sure they didn't advertise this to their shareholders.

If they didn't inform their shareholders they'd probably be in deep trouble with the SEC. Publicly held corporations are required to release such information.

I didn't know yield was calculated by the previous year rather than the current rate. It's not such a good buy after all.

You should look at what is called the "Forward Dividend Rate" - This the is rate expected to be paid over the next year.

And if BB&T can't keep up their dividend payments on their preferred stock, I certainly wouldn't buy their common stock either.

Check out the latest rates on 5 year treasuries. Paying $23 now and being repaid $25 4 years in the future in return is a 2.1% annual gain - vs. the 1.4% return on Treasuries.


If they were expected to continue paying the dividend that would be worked into the price anyways. You don't get a free lunch.