Does company pay dividend? Call to ask
Q: How can I tell whether a company pays a dividend, and how big it is? — C.B., Muskegon, Michigan
A: You can always just call it and ask. Start with the investor relations department. It’s also easy to look up the answer online or in newspaper stock listings. Instead of the dividend itself, many stock listings include the dividend yield, which is the percentage of the current stock price being paid out annually in dividends. If there’s a yield, it means there’s a dividend.
To figure out the dividend from the yield, multiply the yield by the stock price. Imagine that Whoa Nellie Brake Co. (ticker: HALTT) is trading at $80 per share with a yield of 2 percent (which is 0.02). Multiply 0.02 by 80, and you’ll get 1.60, meaning that the company is paying out $1.60 each year in dividends per share. (Companies often pay dividends quarterly, so this would be $0.40 per quarter.) Learn more about them first.
For starters, know that interest rates, which have long been near record lows, have begun inching up. That’s not good news for bonds, as there’s typically an inverse relationship between bond prices and yields.
If interest rates rise, the prices of existing bonds drop, and vice versa. Why? Imagine owning a bond yielding 3.5 percent. Then rates rise, and a new bond with the same terms yields 4.0 percent. If you want to sell your now-less-attractive bond, you’ll have to offer a discount to compensate for the lower yield.
This isn’t necessarily a problem for investors in individual bonds. As long as you hold the bonds until maturity, the issuer should return your entire principal.
If you invest in bond mutual funds, though, as many people do, results can vary. In 2013, for example, interest rates moved up, and while the stock market surged more than 30 percent, bonds generally lost value. Rising rates in 1994 also led to a bad bond year — and a lackluster year for stocks, too. Still, bond funds do have advantages. They offer diversification and the potential for capital appreciation, and they let you invest small amounts in bonds.
If, above all, you want to preserve your principal, be wary of bond funds and consider individual bonds instead. It’s easy to invest in Treasury securities, including the inflation-indexed I Bond. Many brokerages offer government and other bonds, and you can buy government bonds at treasurydirect.gov, too, commission-free.
Consider short- or intermediate-term bonds or bond funds. Long-term bonds can be more volatile, with any extra yield not worth the risk. Understand that the lower the risk, such as with government bonds, the lower the return. The highest rates are offered by risky junk bonds.
Learn about alternatives for short-term savings at fool.com/personal-finance/ index.aspx and elsewhere.
Foolish trivia: Name that company
I trace my roots to 1916, when my founder, who shares my name, established the Aero Products Co. A year later, during World War I, I was building “flying boats” for the U.S. Navy. That led to more offerings for the military. In the 1920s, I expanded into airmail services and also bought companies such as Sikorsky and Pratt and Whitney. Soon after, antitrust laws made me break up. I’m a commercial and military aerospace giant and have built spacecraft for NASA, too. My order backlog features thousands of airplanes, and my market value tops $100 billion. Who am I?
Last week’s trivia answer
I trace my roots to 1997, when my founder launched a “Name Your Own Price” service. My focus today is on flights, hotels, car rentals, vacation packages and cruises. I bought Booking. com in 2005, Kayak in 2013 and OpenTable in 2014. I rake in more than $10 billion annually and sport a net profit margin near 20 percent. Who am I? (Answer: The Priceline Group)