Dividend Stocks and how they work?
In response to our previous post on the blue chip stocks that pay high dividends, we had several investors asking us for more tips to choose the best dividend stocks and quite a few of them also inquiring if there are any other high dividend stocks on the ASX that we hold.
Well, of course we decided to jump back on our laptops and write another blog that talks about stocks that are not very widely known but come with growth potential and high dividends. At the risk of spilling more of our secrets, we decided to give you guys a couple of more stocks that we hold for their high dividends and also answer a few questions that we were asked by our members when determining their dividend stock strategy.
In light of the top banks and other blue-chip players cutting or cancelling dividends this reporting season, investors have had to look elsewhere. Below are a couple of the non-blue-chip stocks we hold in our dividend portfolio:
Monash IVF (ASX: MVF)
Monash operates in the human fertility and assisted reproductive industry and is the second biggest player in Australia’s fertility industry. Since the IPO of Monash IVF, it has been quite busy acquiring clinics to broaden its market position and penetration levels. The current strategy of MVF is to integrate diagnostic services with fertility and seek opportunities in the Asia-Pacific region. IVF is a pretty stable market and hence, the firm is already a high dividend stock on the ASX.
Monash has also raised equity recently in a bid to reduce its debt levels and mitigate some of the impacts of the pandemic. Stimulated cycles have seen a growth of about 25% since restrictions surrounding non-essential treatments were lifted. The firm’s revenues are forecasted to increase in the coming years as the MVF sees growth in its operations – making it one of the best dividend stocks to buy in the ASX.
McPherson’s Limited (ASX: MCP)
The wholesale supplier of health, beauty, and personal care products operates in Australia, NZ, and parts of Asia. It has a diversified product offering and has performed well in FY2020. The pandemic has changed consumer behaviour and MCP’s core brands have all benefited from a 1.5x growth. Most of this demand has come from China and we estimate it to sell more of its products in China in the coming months.
MCP is looking to stabilise and grow their business in NZ and Singapore and then expand to create a China facing business as they look to break into the one of the biggest consumer markets in the world. Mergers & Acquisitions is of primary concern as MCP is focussed on creating a new team just for M&A opportunities.
The 72% dividend payout ratio in FY2020 makes it a high dividend stock on the ASX that will also be accompanied by growth.
Our individual equity reports for both these firms are up on our website and they should give investors a lot more detail about its financials and why they are forecasted to grow.
As promised, we will answer a few questions that we frequently get asked by our members on dividend stocks and the strategy they should follow:
- Can you buy a stock right before dividend?
No, an investor has to buy the stock before the ex-dividend date in order to benefit from the dividend payout.
- How often do stocks pay out dividends?
While firms are not limited to the number of times they pay dividends in a year, most firms on the ASX pay an interim dividend and a final dividend – that is, twice a year.
- How to buy dividend stocks without a broker?
Buying stock without a broker can be an expensive affair as you would need to use a transfer agent or a direct purchase plan. The easiest way to buy stocks is to open a share trading account with your bank (such as CommSec).
- When do companies pay dividends on stocks?
Companies pay a dividend when they have excess earnings. That is, when the firm has generated enough revenue to cover its costs and reinvestment for the future, they pay the excess cash as dividends.
- Do special dividends affect stock prices?
In theory, yes, special dividends just like cash dividend payout theoretically reduce the stock price as the distribution of cash reduces the value of the firm.
To answer the million-dollar question – how to choose the best dividend stocks? We have to look at quite a few metrics (not just earnings and profitability) of the individual stocks and also certain macro-economic factors. Our income portfolio does just that and then some. But for those of you who are not subscribed, we figured we can let you in on a few income stocks we hold in this blog.