From Ken Little,
Your Guide to Stocks.
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Many investors look to dividends for current income and to bolster their return. Dividends and their ratios can also tell you much about a stock.

There are a number of Websites that can provide you with good information on dividends and dividend ratios. One that I like is Rueters.com.

Click on its investing link (you need to sign up for the free registration) and enter a stock symbol. The site presents you with a wealth of information. Click again on “ratios” and you will see the Dividend Ratios section.

Dividend Yield

The first item is the Dividend Yield. You calculate the Dividend Yield by dividing the annual dividend per share by the stock price.

You’ll notice that the next column is Industry. Reuters groups every company with similar companies that operate in much the same manner.

The following column is Sector. Here, Reuters groups all companies into one of 12 sectors. Others group into 11 sectors, but the concept is the same.

The final column is S&P 500, which is used as a target for the whole market.

Past Performance

The next two ratios, Dividend Yield – 5-Year Ave. and Dividend 5 Year Growth Rate, look at how the stock has performed in the past.

Typically, higher yield means lower growth rate. Utilities and real estate are sectors that often pay high current yields but don’t often grow rapidly.

This chart lets you look at growth and yield so you can find the stocks with the right balance between current yield and dividend growth.

The final item is the Dividend Payout Ratio. It is calculated by dividing the dividends per share by the earnings per share.

This ratio can serve as a red flag if it differs wildly from the Industry or Sector numbers. Changes in earnings due to sales of assets or other one-time events can throw this calculation off.

Conclusion

These dividend ratios don’t tell the whole story, but they will give you some important information. Anytime you can look at historical averages compared to industry and sector norms, that is valuable information.