Dividends Indicate Upside in the Stock

Chris Versace

Chris Versace is a financial columnist and equity analyst with more than 20 years of experience in the investment industry.
[happy investor up arrows]

Many investors are fans of dividends because of the income stream they provide. Whether you choose to live off of those dividend payments or reinvest them to help grow your wealth and investing capital, monthly, quarterly or annual dividend payments are an added bonus for investors, but there are other reasons to be bullish when it comes to dividends. For example, the ability of a management team to consistently pay a quarterly dividend points to favorable cash flow generation. Even better is what I discussed with you last week — dividend dynamo companies that have such strong business models that they can consistently raise their annual dividend. A great example of that is McCormick & Co. (MKC), which just raised its annual dividend for the 28th time.


There is another positive to dividends and dividend dynamo companies in particular. Before I get to that, I think you’ll agree that one of the hardest things in investing is how to assess what a stock you are eyeing is really worth. There are all sorts of valuation techniques and methodologies you can employ to determine that security’s value. Believe me, after working with institutional investors for a number of years I’m quite familiar with them: the price to earnings (P/E) ratio, the P/E to growth ratio, price to sales and enterprise value to earnings before interest, tax, depreciation and amortization (EBITDA). If what you are analyzing has a net cash balance sheet, you have to account for that in your calculations.

Another valuation tool you can use is dividends. More specifically, you can examine the company’s dividend yield against the highs and lows in its stock price. For those companies that I recommend to subscribers of PowerTrend Profits and for positions I am evaluating for the Thematic Growth Portfolio that I oversee for Fabian Wealth Strategies, this is a mandatory exercise. By identifying prior peaks and troughs in a stock’s share price going back several years and the corresponding dividend yield, we can build an historical framework of peak and trough dividend yields for the shares.

Exclusive  Three Defense Stocks to Buy While Wars Rage

Applying those peaks and troughs to the current annual dividend establishes an upside price target for the shares, as well as a potential downside target. If we’re looking over a dividend dynamo company, the dividend yield’s upside to downside band steps higher as a company raises its dividend. In the case of a dividend dynamo company that raises its dividend each year, all things being equal, there is a step function higher in that upside to downside band.


Of course, when you’re analyzing a company and deciding to buy the shares, you want to make sure you have more upside in the shares than downside. My PowerTrend Profits subscribers know I prefer companies that offer net upside potential of at least 25%. That means at least 25% upside remaining after I subtract the potential downside from the potential upside. When looking to determine which companies offer such favorable upside characteristics, dividends and using dividend-yield analysis is a valuation tool that you should include in your stock analysis arsenal.

What’s Next for the Stock Market, Other than More Volatility, with Cuttone’s Keith Bliss
Joining me on PowerTalk this week to discuss the recent pullback in the stock market and where it is likely to head, both in the near term and longer term, is my good friend Keith Bliss. Keith is a senior vice president at Cuttone & Company, the floor broker with the largest operation at the New York Stock Exchange. I’ve known Keith for many years now, and this is the kind of conversation that he and I have on a more-than-periodic basis. It is an inside baseball conversation about the stock market, and I think you’ll find it very timely.

Exclusive  Three Defense Stocks to Buy While Wars Rage

As Keith points out, investors will be dealing with volatility in the stock market as the Federal Reserve continues to taper its monetary-stimulus, quantitative easing efforts. Alongside that, economic data, corporate commentary and other tea leaves will determine the direction of the stock market. After talking with Keith, I think you will be more than surprised by what he has to say.

That said, we both agree there are pockets of opportunity to be had — pain points such as cybersecurity and the current drought situation, as well as opportunities, such as the intersection of mobile, the Internet and computing, that are reshaping industries and business models around us. Keith and I also discuss a looming pain point in the United States — the increasingly older U.S. population that is looking like it will not have enough retirement savings to last its golden years. Data from a number of sources reveals 44% of Americans are living paycheck to paycheck, the average 401(K) balance is only $64,000 and the payroll-to-population ratio in January was just 42%.


Make no mistake, there will be some long-term pain felt. The question you should be asking yourself is: how do YOU profit from it?

Listen to my one-on-one conversation with
Keith Bliss of Cuttone & Co.

In case you missed it, I encourage you to read my PowerTrend Brief from last week about weathering the stock market storm with dividend dynamos. I also invite you to comment in the space provided below.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader


Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle


DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops