There’s a very exciting phenomenon going on right now – and no, I’m not talking about all the “UFO” sightings in California, Florida and Washington state. I’m talking about a new record that directly benefits investors in dividend-paying stocks.
According to the S&P Dow Jones Indices, quarterly dividend payments increased substantially in the fourth quarter—and in 2019 overall. During the fourth quarter, the average dividend increase was 10.01%, and a record $126.4 billion was paid in dividends, or a 5.5% year-over-year increase.
For full-year 2019, a record $56.24 per share was paid in dividends, making 2019 the eighth-straight year of record dividend increases. An aggregate amount of $485.4 billion was paid to shareholders in the form of dividends in 2019, up from $456.3 billion in 2018.
Looking forward to full-year 2020, analysts at the S&P Dow Jones Indices expect dividends to continue to climb higher. In fact, a 3.3% dividend increase is already baked in the cake for this year—and more than 350 dividend increases are anticipated. The analyst also noted that dividends may “return to their double-digit growth rate” in 2020.
But as we’ve seen, even in a bull market not every stock is a winner. You must stay vigilant when it comes to your dividend-paying stocks. Even if the sector as a whole is strong, you don’t want to miss warning signs that your dividend could be in danger. And what I mean by that is that the dividend could be on the verge of being slashed or disappear completely.
So, today, I’d like to share with you five warnings signs that you need to keep an eye out for.
Warning Sign #1: Deteriorating Cash Flow
When determining if a company’s dividend is sustainable, the first place you should look is the company’s cash position. Consider both the cash on the company’s balance sheet and its ability to generate cash flow. If a company’s cash flow is deteriorating or it’s taking enormous amounts of debt, its ability to pay a dividend is also deteriorating.
Warning Sign #2: Credit Downgrades
Typically, a credit downgrade precedes a cut in a company’s formal credit rating. Companies do not want this to happen; if their credit ratings are cut, it puts them at risk of higher borrowing costs when they issue new debt. So when a credit downgrade does happen, companies often slash their dividend in order to preserve cash flow, as well as its credit rating.
Warning Sign #3: Weak Fundamentals
Earnings announcement season isn’t just about revenues and profits. It also reveals which companies can sustain their corporate buyback programs and dividend payments. You see, when a company has weak fundamentals, it can’t rely on sales growth or earnings growth to improve its cash flow. Instead, it has to look at what it can cut to make up the difference and free up cash. The first step is usually to eliminate stock buyback programs and the second step is to cut dividends.
In most cases, it doesn’t matter how many consecutive quarters a company has paid a dividend or how consistently it’s increased the payment until now. Many companies are going to prioritize cash flow first because that’s the way they keep their businesses running.
Warning Sign #4: Suspended Stock Buyback Programs
When a company cuts back or suspends its stock buyback program, it could be a sign of trouble. Specifically, when a company suspends stock buybacks, it typically means that the company doesn’t have enough cash to support the program or that it’s taken on too much debt to buy stock. And if a company doesn’t have enough cash to support stock buybacks, the dividend is next in line to be cut.
Warning Sign #5: Falling Stock Price, Rising Yield
When a business runs into money problems, it will look for less sustainable ways to support their dividends. For example, a company may cut costs, using cash originally allocated for basic operations or capital investment to fund dividend payments. In other instances, a company may take on more debt or sell shares in order to raise more funds to support dividend payments.
What’s interesting is that when this is happening behind the scenes, the company’s dividend yield is growing more attractive to yield hungry investors. That’s because the dividend yield is rising, as the company’s stock price is falling. But if these investors don’t look under the hood to uncover the real reason for rising dividend yields, they could be in a heap of trouble when the company ultimately can’t maintain its payouts and cuts the dividend.
No Red Flags in Sight for My Elite Dividend Payers
However, in my Growth Investor service, there’s not a red flag in sight for my Elite Dividend Payers stocks. My Elite Dividend Payers Buy List is chock full of stocks with not only the ability to consistently pay a dividend quarter-after-quarter, but also the ability to raise this dividend to further reward shareholders’ loyalty. And 85% of my Elite Dividend Payers yield more than the S&P 500!
I am very optimistic about what 2020 has in store for my Elite Dividend Payers Buy List, as well as my High-Growth Investments Buy List. All told, my Growth Investor stocks are characterized by 50.2% average annual earnings growth and 16.2% average annual sales growth. And I fully expect wave-after-wave of positive earnings surprises – as well as positive 2020 guidance – to drive these stocks higher in the wake of the upcoming fourth-quarter earnings season.
There’s one company in particular that I expect to do exceptionally well this year. It’s a growth stock in the artificial intelligence (A.I.) space and it offers a dividend, so it offers a rare one-two punch of high growth and income.
I call it my A.I. Master Key.
It is the company that makes the “brain” that all A.I. software needs to function, spot patterns, and interpret data.
It’s known as the “Volta Chip” — and it’s what makes the A.I. revolution possible.
Some of the biggest players in elite investing circles have large stakes in the A.I. Master Key:
Ron Baron, billionaire money manager with one of the biggest estates in the Hamptons.
Ken Fisher, author of The Ten Roads to Riches and other bestsellers, who’s made the Forbes 400 Richest Americans list.
Mario Gabelli, namesake of the Gabelli Funds, with a salary of $85 million for one year — Wall Street’s highest paid CEO.
And some of the biggest companies are also its customers, including Google (GOOGL), Microsoft (MSFT), Amazon (AMZN), Baidu (BIDU), Facebook (FB), Tesla (TSLA) and Alibaba (BABA).
I’ll tell you everything you need to know, as well as my buy recommendation, in my special report for Growth Investor, The A.I. Master Key. The stock is currently sitting pretty with about a 48% return on my Growth Investor Buy List, but it still under my buy limit price — so you’ll want to sign up now; that way, you can get in while you can still do so cheaply.
I also recently recommended a new AA-rated Elite Dividend Payers stock. It’s in the insurance industry and has paid a dividend for a whopping 105-consecutive quarters.