A recent stock screening exercise showed over 1,500 stocks currently pay dividends. The yields on these dividend stocks varied widely from New York Mortgage Trust with their 26.3% yield to lowly State Street Corp and their paltry 0.07% dividend yield.
While there are many quality dividend paying stocks that offer investors respectable yields, it can be frustrating trying to sort through the myriad of stocks that pay only a token dividend yield. I fondly refer to these companies as fake dividend stocks.
Many of these fake dividend stocks are really quality companies with great earnings and growth prospects. However, they offer ridiculously low dividend yields and return only a tiny fraction of their cash back to their shareholders. These companies pay investors as little as they feel they can get away with, while still being classified as a dividend stock.
eDividendStocks.com has put together a list of 6 fake dividend stocks. These are all companies that are very profitable, are forecasted to grow their earnings and yet they only pay out a tiny fraction of their earnings in dividends.
The pharmaceutical stock currently offers a dividend yield of only 0.3% and has not increased their dividend since 2005.
Since initiating their dividend in 2005, the company has continued to pay investors a whopping $.06 per share each year and offers a paltry 0.1% dividend yield.
After increasing their dividend by $.01 in 2006, Equifax has kept their annual dividend constant at $.16 per share and yields only 0.4%.
The energy company has held their quarterly dividend at $.10 per share since 2006 and currently yields only 0.6%.
Hewlett-Packard is currently the second-lowest yielding dividend stock in the Dow Jones index (behind only Bank of America’s nominal dividend). The stock currently pays dividend investors only $.32 per share each year – the same amount it paid in 1998 (the last time they increased their dividend).
Last year, Precision Castparts earned $7.38 per share and yet only paid out $.12 per share in dividends.
Of course, these six companies are not the only fake dividend stocks. There are dozens more who want to be classified as a dividend stock and yet they want to pay as small of a dividend as possible. There are times when economic or business conditions will force a company to cut their dividend – Bank of America, Citigroup, General Electric, etc. all dramatically reduced their dividend during the Great Recession. While dividend cuts are painful at least investors generally understand why a company is compelled to do so. On the other hand, fake dividend stocks are in a great position to pay out higher dividend yields, but willfully choose to pay tiny yields instead.
Disclosure: No Positions