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Dividends represent a company’s earnings distribution in regular payments provided to shareholders (dividends are distributed out of the profit of annual earnings and free cash flow). A company distributes profits to investors, generally through cash payments, yet some companies may pay dividends in shares of stock. Semi-annual dividend payments are common in Australia, though dividend payments can be distributed monthly, quarterly and even annually. Importantly, there is also what’s referred to as a special dividend, which is a one-off payment, usually on the back of higher-than-expected company profits. Finally, not all companies provide dividend payments to their shareholders, nor are they obligated to do so.
Do bear in mind that an abnormally high dividend yield may suggest a depreciating stock price, a stock with limited growth potential or even a one-off special dividend.
What is the ASX?
ASX, or the Australia Securities Exchange, is a forum designed for the trading of equities, fixed income, commodities and energy. It lists approximately 2,300 companies.
Cash market trading hours for the ASX are between 10 am and 4 pm local time (Sydney).
What is the ASX 200?
The ASX 200 is a share market index weighted by float-adjusted market capitalisation, tracking the largest 200 listed companies and is used by many as a performance gauge for Australian equities (the Aussie stock market).
Do not confuse this with the All Ordinaries share market index, which comprises 500 of the largest ASX-listed stocks, an index weighted by market capitalisation.
Why Do Some ASX Companies Deliver Regular Dividend Payments?
Companies provide dividend payments to retain current shareholders. How investors manage their dividend payments will, of course, differ. Some reinvest dividend payments to increase their overall portfolio, while other ‘income investors’ use dividends to generate passive income and support retirement planning. However, it is important to understand that dividend payments fall under taxable income.
Unlike dividend-paying stocks, growth stocks tend to reinvest their earnings rather than distribute dividend payments.
How Do I Calculate Dividend Yield?
For each unit of currency invested into a company’s stock, the dividend yield is the return on investment (not including any capital gains), calculated by dividing the complete annual dividend payment by the share price of a stock. This will provide an annual dividend yield percentage.
The ASX 200 index currently has a 3.38% annual dividend yield for comparison purposes.
CBA is a well-known ASX blue-chip dividend-paying stock, boasting an annual dividend yield of 4.2%. The banking giant—the second largest in Australia (behind BHG Group Limited) in market capitalisation in the ASX (167.17B)—has consistently maintained a relatively attractive dividend yield and is anticipated to increase in 2023 and 2024.
As evident from the chart below, the price of CBA has trended north since reaching a bottom in March (2020) at AUD 53.44. However, since June 2021, the stock has been rangebound between AUD 110.19 and AUD 87.04-AUD 92.59.
Rio Tinto is a well-known multinational metals and mining organisation with offices across the globe. According to market capitalisation, Rio Tinto is the 14th largest company listed on the ASX and offers an attractive annual dividend yield of 5.99%.
According to the daily timeframe for RIO, support was recently brought into the fray between AUD 112.45 and AUD 114.99 in a market trending higher since bottoming in late September of 2022 at AUD 87.60 (shaped by way of a double-bottom pattern). Current buyers, therefore, could aim as far north as the AUD 128.78 February peak.
Boasting an impressive dividend yield of 10.4% and currently trading under AUD 7, Whitehaven Coal—an Australian coal-mining company focussed on the operation of coal mines across the country—is considered an attractive dividend-paying energy stock. WHC is the 83rd largest company listed on the ASX based on market capitalisation.
Since topping around AUD 11, the stock has been gradually trending lower, though notable support is approaching at AUD 5.94.
Charts: Trading View
With FP Markets, the three noted stocks can be traded through CFDs (Contracts for Differences). Although trading with CFDs means trading through a derivative product (i.e., not taking direct ownership of the underlying shares), you are still entitled to dividend payments. If you enter long a share CFD before the ex-dividend date, the dividend payment will be received as a credit to your trading account (though if you’re short, this will be a debit).
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