Healthy dividend, healthy company

It’s important to pay attention all kinds of things when you buy stocks, but a strong, steadily increasing and sustainable dividend is a great starting point.

The dividend won’t tell you all there is to know, but it can tell you several things that are pretty important.

Today’s payment, the $0.83 that hit my account courtesy of Ameriprise Financial, is a good example. It was my 14th dividend payment of the week. I also received dividends on Monday, Tuesday and Thursday.

Today marked the second time AMP shipped a dividend my way since I opened a small position (1 share) back in April. Both have been for $0.83. Now, what can that $0.83 payment tell me, you and anyone willing to listen about Ameriprise?

Honestly, nothing. Nothing at all … at least not on its own. The amount of a dividend means next to nothing unless you know a few key things.

Number of consecutive dividend increases

Throw the amount of consecutive years the company has increased said dividend and you’re starting to get somewhere. Ameriprise has bumped its payment a little higher each of the last seven years, meaning a couple things.

  1. The company is making more than enough money to justify not only paying a dividend, but raising it.
  2. The company actually wants to reward shareholders with a small piece of the pie.

Paying a dividend is a choice, ya know. Companies don’t have to do it, but if they are committed to paying and raising dividends for more than a few years, odds are that’s part of their long-term plan.

Payout ratio

The payout ratio can help paint the picture of just how healthy a company is as well. AMP pays a decent dividend, one that yields 2.39% and is growing at an annualized rate of 13.3% over the course of the last three years. That said, it’s payout ratio is still pretty darn low, sitting at a comfortable 37.86% … meaning the company is making more than enough money to pay it and continue to raise it with plenty of room to spare. It can use the rest of the money to do other things, like grow the business.

I haven’t told you what AMP’s earnings look like, but I can tell you this: based on the two pieces of dividend info I gave you, I’d be willing most of you would say they’re looking good.

You’d be right.

Ameriprise, which has a profit margin of more than 13% last time I checked, grew its earnings per share (EPS) 26.90% last quarter vs. the same quarter from the previous year. That ain’t bad.

I know I threw in a few more numbers than I usually do. I try not to get too analytical as I’m not even sure I know what I’m talking about half the time. That said, though, I feel pretty good about this: a healthy and sustainable dividend is usually a sign of a healthy and sustainable business. That, in a nutshell, is really all I was trying to get at.

March on!