In this blog post, I will go over the concept of what I describe as a “DINO” or Dividend in Name Only.
It’s quite a simple concept so shouldn’t take too long to explain but I do refer to it quite often so I thought I should probably make a video to clear up what exactly I mean when I use that terminology.
So, what is a DINO?
The idea behind the DINO concept is simply just a dividend paying stock that does technically pay a dividend, but the dividend is so low that it is essentially irrelevant to the decision whether to buy the stock or not.
When I set out my 10 Dividend Experiment Investing Commandments – which you can get a free copy of when you sign up for the email list – the first rule is:
“The Company Must Pay a Dividend or at Least Plan to in the Near Future”.
But this misses a significant caveat – the dividend has to actually be noticeable and significant.
That’s why, when I screen for dividend stocks, I usually set a minimum yield of 3%, I want to avoid the dividend stocks that pay a dividend so low that you would need a million-pound portfolio just to get a reasonable income.
What are some examples of DINOs?
To give a better example of what a DINO is let’s take a look at some examples.
Here is one of the ultimate DINO stocks and a perfect example – $NVDA – NVIDIA Corporation.
If we look down to the Forward Dividend & Yield section of the image, we can see a miserable 0.03% yield.
To put that in perspective it would require ~$40 million of that stock to get an income of $1000 a month.
Not exactly a candidate to build a portfolio that pays your bills.
Does it pay a dividend? Yes, it technically does, but because it’s so small it is barely worth mentioning it at all.
In my opinion, this company shouldn’t even bother paying a dividend, it’s an administrative effort that could be done without and the money could most likely be better spent actually developing the technology in the company rather than paying out an insignificant amount to shareholders.
Let’s look at another example.
Now I will get hate for this one from the ‘dividend growth community’ but another classic DINO is $MA – Mastercard Incorporated.
The reason that dividend growth investors love it is that it has a very good growth rate for its dividends:
A 5-year growth rate of almost 20% is pretty incredible really and it has a track record of 11 years. But it’s not so hard to grow when you have such a minuscule starting point and Mastercard barely has over half a percent current yield.
Am I saying that you shouldn’t buy DINOs?
Now here comes the nuance that a lot of commenters below are probably already winding up their keyboard fingers to complain about.
I am not saying you shouldn’t ever buy DINO stocks.
What I am saying is that you probably wouldn’t want to be buying them in the context of buying a portfolio that pays your bills. In other words, these are not the type of companies that I would be buying for the base of the metronome – providing the income I need to pay my bills.