Amidst tough economic times it’s critical that investors produce significant passive income. In this post we’ll examine several dividend stocks that meet specific income-producing criteria, expand upon current market opportunities, and offer growth potential to investors. By doing so, investors will be better able to analyze potential investment opportunities, as well as acquire knowledge of key stock metrics.
The first of these, Royal Dutch Shell plc (ADR) (NYSE:RDS.B), offers a whopping 5.3% payout. But it’s important to execute what I like to call a “dividend x-ray.” What’s important is not only high yield, but that the stock also possesses a strong dividend history and excellent dividend growth. In other words, the company needs to have paid dividends consistently for at least 20-30 years (and hopefully longer) and never missed a payment. Payout consistency is key, as investors want reliable income. Next, the company’s dividend needs to offer income growth. Does the company increase its dividends on at least a yearly basis, and if so at what rate? Also, it’s important to examine less mentioned aspects of special dividend payments. Does the company reward long-term investors with optional “bonus” payments, often at a higher rate?
So, let’s “x-ray” Royal Dutch Shell plc (ADR) (NYSE:RDS.A). Recently, the company introduced a new DRIP that initially lets Royal Dutch check out without any broken bones. But let’s analyze further. Does the company offer regular payouts, and if so for how long and is there a healthy rate of increase? When we x-ray our stock, it clearly possesses regular quarterly payouts, but the rate of increase is unimpressive, and as a heavy weight large cap stock long-term growth may be limited. Therefore, a special dividend here would be rare, if not unheard of. In sum, although the 5.3% yield is initially impressive our x-ray seems to reveal that Royal Dutch Shell plc (ADR) (NYSE:RDS.A) has a few fractures. So, let’s keep moving.
Next, let’s explore our options when it comes to Transocean LTD (NYSE:RIG). To be honest, the company is not without its share of headaches, primarily its involvement in the 2010 Deepwater Horizon oil spill. That being said, this alone shouldn’t keep it from the running. On initial glance the company offers a juicy 4.5% yield. However, as before, it’s time to get to work applying the x-ray. Drilling down further we can see Transocean’s payouts are irregular at best and highly inconsistent to say the least. But let’s discount that judgement momentarily. Remember that the company has been saddled with ongoing litigation for several years, and yet despite this the fat 4.5% yield is enticing. However, for brevity’s sake let’s skip on the rate of increase as the company’s infrequent dividends do not make this an accurate analysis, and in fairness as a more speculative debt-laden stock Transocean LTD (NYSE:RIG) is not a prime candidate for long-term value investing. For these reasons I think I’ll pass.