Dividends are real and tangible profits an investor receives from owning shares of stocks. It is one of several ways to make money from stock investing. Other incomes from stocks may include price increases (or capital appreciation) and stock rights.
Dividends may be in the form of cash (and are called cash dividends) or in the form of stocks (hence, called stock dividends). To learn more how to profit from stocks, read our article on How to Make Money from the Stock Market.
As a source of income, then, dividends should be considered by investors when making stock decisions. In times of recession and stock price declines, for example, an investor may recoup his or her losses by relying on dividends alone. As I have mentioned before in our article High Dividend-Paying Stocks in the Philippines, I relied on dividends to compensate for unrealized losses in my PLDT stock.
Back in the early 2000s, my average cost for PLDT (stock code: TEL) was around P2,800. In 2008, its stock price has tumbled to P2,300. That’s a whopping 18% paper loss.
However, I was not concerned because PLDT was (and still is) a good dividend-paying stock. In fact, it is one of the highest-paying among traded stocks in the Philippine Stock Exchange, normally yielding 6-10% dividend returns per year. Assuming an unchanged stock price and dividend yield, I could recoup my 18% paper loss on PLDT by relying on cash dividends alone if I held the stock for at least 2 or 3 years.
Now that PLDT is trading at P2,864 per share, my unrealized capital gain is 2.30%. The price increase may be small compared to other stocks, but if you factor in the 6-10% dividend yield in the past years, my total gains (in the form of cash dividends) have already reached 50%. Take note that these are realized and tangible profits since I received cold, hard cash as dividends from PLDT for almost a decade now.
Thus, dividends must be considered when investing in stocks. To help guide you about PSE-traded stocks and the dividends they distribute, here’s a summary of PSE index stocks and their dividend yields in 2012 and 2011.
The dividend yield is simply the total dividends received from the company divided by the price of the stock. The higher the dividend yield is, the bigger the potential income from that stock.
Cash Dividend Yields of PSE Index (PSEi) stocks in 2012
Source: Technistock / BPI Trade
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