According to SlickCharts, as of 6 January 2017, there are 506 companies whose stocks make up the S&P 500 stock market index. According to Standard and Poor, 418 of those companies pay dividends. And according to Google Finance, which provided the raw data for each of those companies, the following chart shows the approximate stock prices with respect to the indicated annual dividends for each those 418 firms as of 6 January 2017.
After making this chart, we couldn't help but notice the four companies that appear in the upper left corner of the chart, whose very high stock prices and very low projected annual dividends per share make them outliers when compared to nearly all the other data points in the chart. So we went the extra mile and recalculated the power law relationship we found between annual dividends per share and the stock prices for the 414 other companies of the S&P 500 that pay dividends to their shareholders.
The four dividend paying firms whose stocks and dividends per share that we excluded from this second chart are: Cigna Corporation (NYSE: CI), Pioneer Natural Resources Company (NYSE: PXD), Global Payments Inc. (NYSE: GPN), and Cooper Companies Inc. (NYSE: COO).
Having established a considerably stronger correlation by excluding the share prices and annual dividends per share of these four S&P 500 companies, we now have a way to assess how a given company's share price compares to its dividend paying peers, where you can use the tool below to see what share price might be considered to be typical for a S&P 500 that pays the amount of annual dividends per share that you enter. If you're accessing this article that republishes our RSS news feed, please click here to access a working version of the following tool.
There's a lot that goes into whether or not a given firm's stock price might be considered to be high or low with respect to the "typical" share price that our tool above calculates. A growth stock may have a small dividend, where the company's owners are choosing to direct its earnings and available free cash flow toward investments that promise to rapidly boost the firm's revenues or increase its share of the markets in which it operates, which therefore tend to have high share prices with respect to whatever dividends they might pay.
Regardless of its share price, if a company doesn't pay dividends, it's technically a growth stock, even if it was a firm that previously paid dividends but stopped because of some form of economic distress, where you can identify the firms that fall into the latter category their very low prices per share. In January 2017, there were 88 non-dividend paying firms in the S&P 500 that collectively account for 15% of the S&P 500's total market capitalization.
Value stocks and income stocks, on the other hand, are often firms whose growth prospects are more limited, where the owners of the company have chosen to draw a regular income through cash dividend payments that are supported by the firm's earnings and cash flow. Compared to growth firms, the stocks of value and income firms tend to have considerably lower stock prices with respect to their dividends per share - mainly because of their slower growth prospects, but also in part because they are actively pulling market value out of the company whenever they make dividend payments to their shareholders.
Telling which kind of company is which can be challenging, but that's where a tool like the one we just created above might be useful. At the very least, it can give you something a bit more tangible to go on than you can usually find in mainstream media reporting on the topic!
Labels: dividends, investing, SP 500, tool
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
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