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The Machine · Reading a company

A 10% dividend can be a warning

€2÷€10=20%a bigger yield from a smaller price
What it is

A share costs €20 and pays €2 a year: 10%. Then the price falls to €10. The same €2 now reads 20%. Nothing got better. The price fell.

PROFIT A SHARE€1DIVIDEND A SHARE€2a 200% payout
Why it matters

A company that earns €1 a share and pays €2 is paying out 200% of its profit. The extra euro comes from savings or loans. That can last a while, not for ever.

$2 a yearhalvedstopped19972009
The numbers

General Motors paid $2 a share a year from 1997. As its shares fell, that passed 8%, the highest yield in the Dow. In 2006 GM cut it in half, in 2008 it stopped, and in 2009 GM went bankrupt.

Highest yield on the listAsk why it is so high
The trap

The highest yield on a list looks like the best deal. Often it is the market saying it doubts the dividend. One exception: property funds (REITs) must pay out most profit, so theirs run high.

Stock pagePayout ratio: 200%
Where you see it

Walgreens paid a dividend every quarter for 91 years. In January 2024 it cut it by 48%. On any stock page, find the payout ratio: under 100%?

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