1	Arts The evocative sculptures of New Mexico artist Deborah Rael-Buckley. read more...
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3	Music Brazil’s bossa nova remains fresh even as it celebrates its 50-year anniversary; the twin sisters who comprise Nina Sky are back with a new album and a fashionista vibe. read more...
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Ask Julie

Make Your Optimi$m Pay Off

Today, more than ever, we need to recall the lessons from a story that is attributed to President Ronald Reagan about the parents of a little boy who was, in their view, overly optimistic. In an effort to dampen the young man’s spirits, they showed him into a room piled high with nothing but horse manure. Without hesitation, the boy climbed to the top of the heap and began digging. “What are you doing?” they asked him in utter disbelief. To which the boy happily replied, “With all this manure, there must be a pony in here somewhere!”
We are at a point in time when this story relates directly to the perceived reality of this nation’s financial status. This is especially true for the conservative investors among us who are nearing retirement and are feeling pressured by plummeting stock prices and diminishing returns. Many are paralyzed with fear and total disbelief when they look at the dwindling bottom line on their account statements. But if we dig deeper into the options available today, we may see the opportunities that lie just beneath the surface, just as our young friend did.
So, where are these opportunities? They are in dividend-paying stocks.What are dividends?
A company uses the income that it generates (gross income) to pay for its overhead—taxes, salaries, rent, supplies, etc. The money that is left over is called the net income. The company may choose to reinvest its net income in the business in order to expand or conduct research. It can also pay out part of the money to its stockholders in the form of a dividend. Younger companies rarely pay dividends, since their main focus is on growth, but more mature companies use part of their net earnings to keep their investors happy in the form of cash distributions (dividends) that are usually paid on a quarterly basis. A dividend is paid as a specific amount per share and it is known as a company’s dividend yield.How do you calculate
Dividend Yield?
The dividend yield is calculated by dividing the amount per share paid to investors in a period of one year by its stock price. For example, if a company’s annual dividend is $1.50 and the stock is trading at $25 per share, the dividend yield is 6 percent. ($1.50 / $25 = 0.06)
Since the share price fluctuates, the dividend yield for each individual depends on the price paid for it at the time of purchase. The lower the share price, the higher the yield. This is the reason why you shouldn’t base your decision to buy a stock only based on its dividend yield. There are other factors to consider.Payout Ratio
The payout ratio refers to the portion of the net earnings that is paid out as a dividend. If your company has a ratio of 40 percent, it means that it distributes 40 percent of its net earnings to shareholders in the form of a dividend.
A high payout rate may be tempting since it implies that the company is willing to kick back a greater share of profits to its shareholders, but it may also strain the business to fulfill its obligations if it should fall under pressure. One example of practice that backfired investors was The New York Times (NYT) with a payout ratio of 60 percent in 2007. The company was forced to decrease its dividend to 15.5 percent when profits fell in 2008.
Healthy ratios vary by industry, but 40 percent is considered to be the average for stocks in the United States. Dividend Stability
You can find these steady-Eddies on the Internet in places like www.dividendinvestor.com. This site gives star ratings to show companies with 5, 10 and 20 consecutive years of dividend increases. You may also visit www.directinvesting.com and www.morningstar.com to gauge a company’s dividend-paying track record.Conclusion
Dividend investing may not entirely rule out the element of risk when buying stocks, but if you dig carefully among the contenders, you will find the pony that you need to carry you onto a smoother road.

Listen to Julie Stav’s radio program Monday through Friday on your local Univision radio station.

For more information
visit www.JulieStav.com.