Editor’s Note: Today, Jim Nelson shares some insight into dividend data…

As an investor, it’s absolutely essential to make sure that you’ve got the best information at your fingertips – after all, bad data or poor assumptions can completely invalidate your investment analysis (think “garbage in, garbage out” when it comes to investment research). That’s why knowing which data sources to trust is such an important part of the investment process. Today I have a word about online dividend information.

As the editor of Lifetime Income Report, a dividend-focused investment advisory, I’ve received many emails and calls from readers concerned about differences in the listed dividends they find on various websites. Regardless of your income portfolio, I think this is an issue worth clarifying…

Oftentimes, a website like Google Finance or Yahoo Finance has the wrong dividend amounts listed for a stock in my readers’ portfolios… and more often than not, it’s one of our foreign plays. This happens because of currency conversion, share-to-unit conversion and tax issues.

If a company announces a dividend that won’t be paid for several months, the exchange rates will change continuously until the dividend is actually sent to shareholders. In that time, these currency changes will alter the amount that dividend is worth. Most quoting services don’t account for these price movements. So when a company goes ex-dividend, they’ll just use whatever number they have to adjust the trailing price.

And if you’re dealing with companies registered in tax-heavy countries, then you should be aware that the taxes might also be taken out of the listed dividend price. Of course, it’s impossible to know what everyone’s individual financial condition is. Instead, we try to focus on the gross dividend amount on the date it is paid.

There doesn’t seem to be any specific rhyme or reason behind many quoting services’ dividend information. It seems to change with every company you look up and every individual payment. One of the best ways to find accurate information on a foreign dividend is to look at whatever its depositary bank uses (BNY Mellon, Citibank Shareholder Services, etc….).

The only thing less reliable than a quoting service’s listed dividend is its listed yield. Take Zecco.com for instance. This is one of the fastest-growing discount brokerages in the world and one of our favorites.

Yet when you take a look at one of our foreign stock income plays on Zecco’s site, it derives its dividend yield from the last payment ($0.75) and multiplies that by two (the number of payments per year). So as far as Zecco is concerned, the company’s dividend yield is 2.7% (75 cents x 2 payments / current share price). But in reality, the 75 cent payment was only an interim payment. If you use the trailing 12 months’ worth of payments, you’d use $1.72 + $0.75. Using the right numbers would give you a yield of 4.4%. That makes a huge difference. That’s nearly a full $1 off your total return, based on an improper computer calculation.

Of course, in the above example, you’d have still received the right dividend, even if you used Zecco. The payment comes from the company and is simply added to your account. It doesn’t, however, affect Zecco’s quoting service, which is separate.

This is why you’ll see some differences when you read about dividend-paying companies, then look up the stocks on your broker’s site (or any other quoting service, for that matter).

Here at Agora Financial, the way we calculate our dividends and yields is based on actual SEC and company information. For foreign stocks like these, we convert the announced dividend into U.S. dollars. We also make sure we have the right number of shares per unit conversion rate, since most ADRs represent more or less than one ordinary share. We also make sure the trailing dividends are used correctly. .

Of course, we’d love to see online quoting services put in the due diligence and find the correct dividend amounts and yields. But in the age of quick information, we’re always going to see mistakes like these.

While all of this can be frustrating, it’s still important. Information is king. We’re constantly digging deep into company filings to find you everything you need to make an informed investment decision. But most other sites don’t. So when you are looking up a dividend online, be aware that it might not be 100% accurate.

Sincerely,
Jim Nelson
Penny Sleuth

August 31, 2010

Jim Nelson

Jim Nelson began his investing career during the tech boom at age 14 – with purchases of Starbucks and AOL. Early inspiration came from an old Tweedy Brown whitepaper: “What Works in the Market.” He graduated with a degree in Political Science from Pittsburgh University, Nelson focuses on income investing, including dividends, covered calls, and fixed-income. Additionally, he covers MLPs, ADRs, utilities, consumer staples and tobacco. Nelson is the managing editor of Lifetime Income Report.

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