In an environment where inflation hovers around 2.2 percent
and 10-year Treasuries yield an anemic 1.6 percent, investors
have essentially been chased into dividend stocks and other
yield-bearing fare. In large part, today's low interest rates
explain the stellar inflows gained by dividend
Thirty-two dividend ETFs tracked by Dorsey Wright &
Associates collectively grew assets by 40 percent through the end
of the third quarter compared to asset growth of 23 percent for
according to data provided by the firm
With dividends soaring in popularity (and size), investors
need to remember a crucial factor about the world of payout
stocks: There is a big difference between a dividend stock and a
stock that pays a dividend, but the line between the two is too
often blurred. That can lead to disappointment for investors.
Using stocks that many investors are familiar with, an example
of a dividend stock is Procter & Gamble (NYSE:
). The Dow component and world's largest consumer staples make
has raised its dividend every year for more than five decades.
Other blue-chip firms such as Coca-Cola (NYSE:
), Exxon Mobil (NYSE:
) and PepsiCo (NYSE:
) have shown similar commitment to their dividends and are in the
midst of multi-decade dividend increase streaks.
These are dividend stocks. The companies themselves know as
much and, as a result, they continue to reward shareholders year
in and year out. On the other hand, a stock that pays a dividend
is just that: A stock with a dividend. Some of these companies
have shown little to no commitment to their respective payouts
and, in some cases, would be best served by cutting, eliminating
or suspending the payout. Here are some examples of companies
that pay dividends that might find better uses for the cash.
Chesapeake Energy (NYSE:
It is no secret that the second-largest U.S. natural gas
production has been facing a major cash crunch. The
Oklahoma-based company has been parting with some prime assets to
raise cash and with $11.6 billion in
asset sales already announced
, the company is 85 percent of the way to its 2012 goal of $13
billion to $14 billion in asset sales.
Problem is Chesapeake's production numbers are bound to take a
beating as the result of these asset sales and the company still
faces a 2013 funding gap. The company pays a dividend, which has
grown impressively over the past decade, but at 35 cents per
share per year, this is no dividend stock.
However, based on
644.56 million shares outstanding
, Chesapeake could save nearly $226 million by eliminating its
dividend. In the case of Chesapeake, a penny saved is a penny
The technology sector is now the largest dividend-paying industry
group in the U.S. and with so much cash sitting on the balance
sheets of Apple (NASDAQ:
), Microsoft (NASDAQ:
) and friends, analysts expect the tech space to offer the best
dividend growth in the coming years as well.
Just do not expect embattled Hewlett-Packard to take part in
that dividend growth. It should not. Yes, HP is pays a dividend.
And yes, the company boosted that dividend by 50 percent last
year and by another 10 percent earlier this year. However, prior
to last year's dividend hike, HP had not raised its payout since
Now, HP faces an
$8.8 billion writedown
tied to the acuisition of software maker Autonomy. To some, HP's
yield of 4.4 percent probably looks alluring. Not so fast. Based
$1.96 billion shares outstanding
, HP's current annual dividend obligation is nearly $1.4 billion.
In other words, the Autonomy writedown is equal to just over six
years worth of HP dividend payments.
In some circumstances, owning state-controlled enterprises as
dividend plays makes sense. After all, governments are greedy and
as the largest shareholders in these companies, they want
dividends, too. Just this year, politicians in China, India and
Russia have moved to force state-run firms to start paying out
greater percentages of corporate profits in the form of
Do not expect that to happen with controversial Petrobras.
Already on the hot seat for
for declining profits and production
, Petrobras cannot compete with its global integrated oil rivals
when it comes to dividends and yield.
) is quadruple that of Petrobras. Chevron's (NYSE:
) is nearly triple and the list goes on. Petrobras has a
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