S&P 500 alters how it classifies companies
Motley Fool
Q: I heard that the S&P 500 recently reorganized itself. What does that mean? — A.B., Winona, Minnesota
A: The Standard & Poor's 500 index of 500 big companies is adjusted regularly, with some companies being removed from the index while others are added to replace them. For example, Twitter was added to the index in June to replace Monsanto, as Monsanto was being acquired by the German company Bayer and would no longer be a standalone company or stock.
The index recently underwent a bigger transformation than usual, though, as it changed how it classifies and groups certain companies. Gone is the Telecoms sector, replaced by a new Communications Services sector. The new sector will contain not only companies that provide various communication platforms, but also companies offering media content. Some of its components will be Comcast, AT&T, Verizon, Disney, Facebook, Twitter, Netflix and Alphabet.
The revision won't affect those invested in the overall S&P 500 index, but if you've invested in funds specializing in a sector, the holdings may well have changed.
Fool's School: Learn dividend 'red flags'
It can be hard to beat dividend stocks. The best ones not only pay you regularly throughout the year (and increase those payouts over time), but their share prices also grow. Still, just like other stocks, dividend payers are not guaranteed to do right by you. Learn to spot red flags and you may be able to avoid some losses.
Researchers Eugene Fama and Kenneth French, studying data from 1927 to 2014, found that dividend payers outperformed nonpayers, averaging 10.4 percent annual growth vs. 8.5 percent. Meanwhile, dividends have accounted for 42 percent of the return of the S&P 500 Index between 1930 and 2017, per Morningstar data.
Still, every year, plenty of companies reduce or even eliminate their payouts — often in times of trouble, when their stock prices are also heading south. Red flags such as extremely high yields, industry headwinds, spotty track records and high payout ratios can warn you to minimize your losses.
A huge dividend yield can be due to the stock having plunged in price, with few investors believing in it. If an industry enters a downswing, as happens in cyclical industries and during economic crises, there may not be any earnings to distribute, leading to dividend cuts or suspensions — which can be temporary or permanent.
Companies with inconsistent histories of dividend payments can be disappointments — especially in a bear market, when external factors may strain their resources. Fortunately, many companies sport long dividend histories. Procter & Gamble, for example, has paid a dividend every year since 1891!
A company's payout ratio — calculated by dividing the annual dividend by earnings per share — reflects the sustainability of its dividend. If a company is paying out more than it's making, that's not a good sign, so a payout ratio well below 100 percent is best.
Name that company
I trace my roots to 1968, when I was formed as one of the first hospital management companies in the U.S. Over many years, I built and acquired hospitals. In 1994, I merged with Columbia Healthcare, which had acquired Humana's hospital operations. I recently boasted 178 hospitals plus 119 surgery centers in 20 states and the United Kingdom. I've been taken public and private several times in my life, and I am currently publicly traded, with a recent market value north of $46 billion. I have 249,000 employees and more than 28 million patient encounters each year. Who am I?
Last week's answer
I trace my roots to 1898, when my founder failed to make granola and flaked wheat berries instead. He later flaked corn, and a breakfast staple was born. I introduced my Bran Flakes in 1915. I was one of the first companies to include nutritional information on packaging. I increased my hiring during the Great Depression and made K rations for soldiers in World War II. I'm based in Battle Creek, Michigan. Today my brands include Pringles, Cheez-It, Keebler, Special K, Pop-Tarts, Eggo, Famous Amos, Morningstar Farms, Nutri-Grain, Kashi and RXBAR. I rake in about $13 billion annually. Who am I? (Answer: Kellogg Company)