Kareem from Share here. As a team of mostly engineers, we can easily spend months coding, shipping new features and improvements, and forget to ever tell anyone about them. Starting this month, weâre going to try to provide regular updates on the features weâre building and why we think theyâre useful for consumer investors.
For the past month weâve been really focused on dividends. First, a bit of an introduction. If youâre well versed in dividends already you might want to skip this part.
What are dividends?
For those unfamiliar, dividends are (typically) cash payments that some companies make to shareholders of their stock. Usually theyâre paid out on a fixed schedule, like quarterly, monthly, or annually. Though many variations exist, quarterly is the most common dividend payment schedule.
Why focus on dividends?
You might have noticed the stock market has had a rough time in 2022. When this happens, people often want to retreat to lower risk, or what is sometimes called ârisk-offâ assets. Risk-off assets can be things like cash and bonds (including treasury and corporate bonds) but also stocks that are perceived as less risky. One way a stock may be considered less risky is by paying a dividend.
Disclaimer: just cause a stock pays a dividend does not make it less risky. Iâm not recommending dividend stocks as a strategy for risk management.
One reason for this perception is that a dividend stock provides some income. That said, the dividend income is usually relatively modest when compared to the price of the stock. For example, hereâs a few dividend yields for some stocks you might know.
Apple currently has a dividend yield of 0.66% - for every $100 invested in Apple today youâll receive $0.66 per year in dividend payments
Microsoft currently has a dividend yield of 1.1% - for every $100 invested in Microsoft today youâll receive $1.10 per year in dividend payments
Home Depot currently has a dividend yield of 2.7% - for every $100 invested in Home Depot today youâll receive $2.70 per year in dividend payments.
As you can see, these dividend payments arenât all that big. However, companies with a long history of dividends can also be perceived as being more stable. In order to pay out a consistent dividend to shareholders for a long time, it requires at the very least enough cash to pay the dividend. Take Home Depot, which has over 1B shares outstanding. At $1.90 per share per quarter, thatâs over $7.6B in dividend payments every year, or almost $2B per quarter. To keep that payment up every quarter, for years on end, requires some pretty stable cashflows. This is why a long history of uninterrupted dividends can be attractive to investors.
This stability can be reflected in the stock price as well. Take our newly created Dividend Yield đ° template (more on this later). Itâs one-year dollar-cost averaging return is -7.5%. Still negative, but the return for one-year dollar-cost averaging into the S&P500 is twice as bad, at almost -15%. See below.
Of course, past performance does not guarantee future returns, and this is not a rigorous comparison of dividend stocks versus non-dividend stocks. Itâs just an observation that in this case these stocks (which all happen to pay dividends) did less poorly than the market at large.
They also did significantly less poorly than most speculative, growth stocks that donât pay dividends (for the most part). Take our Developer Tools template, consisting of many pretty young, unprofitable tech companies.
Of course, we donât know the cause of the relative performance of these strategies is due to dividends. Itâs just an observation. Standard disclaimers apply that this is not a rigorous data analysis but just a discussion for illustrative purposes.
So whatâs new already!
Ok, after that long preamble about dividends, weâve added a few new things to help dividend-focused investors.
Dividend Yield đ° Collection
First, the already mentioned Dividend Yield đ° collection. This is a collection of dividend paying stocks, many of which have a long history of dividends. So if you want to invest in dividend stocks, weâve grouped a bunch of them together to make them easier to find.
Disclaimer: weâve done absolutely no diligence on these companies other than verify that they pay a dividend. We are not recommending them as a good investment strategy, and you may still lose money if you choose to invest in them.
Better Dividend Information đ
Second, weâve broken out the dividend yield of a stock on the asset page, and of a strategy on the strategy page. On the strategy page, the yield is the combined yield from dividends based on historical investing across all assets in the strategy on a weekly recurring basis. On the asset page, we include the total dividend payments youâve received to date, if you hold the stock, as well as the current yield based on the latest stock price we have.
Dividend Reinvestment!!!! đž
Finally, and in my opinion most exciting, is automatic dividend reinvestment. Starting now, if you have any dividend-paying stocks in your strategies, those dividends will be automatically reinvested back into the same strategy along with your weekly investment. Dividend reinvestment can have a powerful effect, since it offers compounding. The stock pays dividends, those dividends are used to buy more stock, and that newly purchased stock also pays dividends!
For now, this feature is automatically on. We will make it an optional setting at some point, and you can choose to keep your dividend payments in cash if you like.
Weâve shipped lots of other useful features (we think) this month, but thatâs the highlights and Iâve talked long enough. Thanks for reading.
If you really want to hear more, Share has a Slack community. You can join us there to talk about investing, give product feedback, and help shape the direction of the product.
Till next time,
- Kareem