S&P 500 Index

The S&P 500 Index explained

Table of Contents:

• Introduction
• S&P 500 FAQs
• S&P 500 Annual Returns
• S&P 500 Current List of Stocks
• Final Thoughts

Introduction

The S&P 500 was founded in 1957.  The S&P 500 is closely watched by market analysts and the media since its performance represents a gauge into the health or lack there of for the U.S. economy.

The S&P (Standards and Poor's) 500 includes 505 common stocks issued by the 500 large capitalization companies included in the index. 

A committee from the S&P Dow Jones Indices, Inc. determines the companies to include in the S&P 500 Index.  

According to Investopedia, to qualify for the index a company must have:

• A market cap of at least $13.1 billion
• At least a quarter-million of its shares trade in each of the previous six months
• Most of its shares in the public’s hands
• Had it initial public offering at least one year earlier
• Have a positive sum of the previous four quarters of earnings, as well as the most recent quarter

According to Wikipedia, “the index includes about 80 percent of the American equity market by capitalization.”  The S&P 500 is a weighted index.  Wikipedia says the S&P 500 “is weighted by free-float market capitalization, so more valuable companies account for relatively more weight in the index.”

The companies and their weights in the index are updated regularly using the S&P Dow Jones Indices, Inc. criteria listed above.  According to Wikipedia, the index currently “contains 505 stocks because it includes two share classes of stock from 5 of” the component companies.

The S&P 500 index is a weighted index and measures the capital-weighted returns of the stocks in the S&P 500.

Check out the beginner's guide to stock investing to learn more about investing.

S&P 500 FAQs from Investopedia:

Who Keeps Track of the S&P 500 Constituents?

The S&P Dow Jones Indices, a subsidiary of S&P Global, Inc., determines which companies get added to the index. It sets the requirements and monitors the constituents' adherence to those requirements.

How Does a Company Get Added to the S&P 500?

To be eligible for S&P 500 index inclusion, a company should be a U.S. company, have a market capitalization of at least $13.1 billion, be highly liquid, and have a public float of at least 10% of its shares outstanding. The company must also be profitable in its most recent quarter’s earnings, and the sum of its trailing four consecutive quarters’ earnings must be positive.

Does the S&P 500 include Nasdaq Stocks?

Yes, the S&P 500 is composed of 500 of the largest companies traded on the NYSE, Nasdaq, and Cboe.

What Are the 10 Biggest Stocks in the S&P 500?

The 10 largest components of the S&P 500, as of Nov. 30, 2021, include:

1. Apple Inc. (AAPL)
2. Microsoft Corp. (MSFT)
3. Amazon.com, Inc. (AMZN)
4. Tesla, Inc. (TSLA)
5. Alphabet Inc. Class A (GOOGL)
6. Nvidia Corp. (NVDA)
7. Alphabet Inc. Class C (GOOG)
8. Meta Platforms (FB), formerly Facebook
9. Berkshire Hathaway Inc. (BRK.B)
10. JPMorgan Chase & Co. (JPM)

 

Can You Just Invest in the S&P 500?

If you want to invest in the S&P 500 as a whole, you don't need to purchase all 500 stocks individually. Several index funds and exchange-traded funds (ETFs) are available to investors. These funds are designed to track the performance of the S&P 500 index.

The annual returns of the S&P 500 since 2010 are:

The mean annual return of the entire history of the S&P 500 is:  11.9%

Year	Return [%]
2021	30.92
2020	18.40
2019	31.49
2018	-4.38
2017	21.83
2016	11.96
2015	1.36
2014	13.52
2013	32.15
2012	15.89
2011	2.10
2010	14.82

The S&P 500 entire history min/max annual return: -43.8%/52.6%

Last 25 years mean annual return: 11.4%

Last 10 years mean annual return: 17.3%

Last 5 years mean annual return: 19.7%

Stocks included in the S&P 500 are (as of March 19, 2022):

#	Company	Symbol	Weight
1	Apple Inc.	AAPL	6.69658
2	Microsoft Corporation	MSFT	5.93045
3	Amazon.com Inc.	AMZN	3.66975
4	Alphabet Inc. Class A	GOOGL	2.15442
5	Alphabet Inc. Class C	GOOG	2.01394
6	Tesla Inc	TSLA	1.89700
7	Berkshire Hathaway Inc. Class B	BRK.B	1.69035
8	NVIDIA Corporation	NVDA	1.65660
9	Meta Platforms Inc. Class A	FB	1.31644
10	UnitedHealth Group Incorporated	UNH	1.27829
11	Johnson & Johnson	JNJ	1.24589
12	JPMorgan Chase & Co.	JPM	1.10864
13	Procter & Gamble Company	PG	0.97270
14	Visa Inc. Class A	V	0.95816
15	Home Depot Inc.	HD	0.95018
16	Exxon Mobil Corporation	XOM	0.89504
17	Bank of America Corp	BAC	0.82945
18	Chevron Corporation	CVX	0.82772
19	Pfizer Inc.	PFE	0.81494
20	Mastercard Incorporated Class A	MA	0.80410
21	AbbVie Inc.	ABBV	0.75050
22	Walt Disney Company	DIS	0.67840
23	Broadcom Inc.	AVGO	0.66406
24	Costco Wholesale Corporation	COST	0.65378
25	Cisco Systems Inc.	CSCO	0.63415
26	Coca-Cola Company	KO	0.62530
27	Eli Lilly and Company	LLY	0.60681
28	Thermo Fisher Scientific Inc.	TMO	0.60359
29	PepsiCo Inc.	PEP	0.59567
30	Verizon Communications Inc.	VZ	0.58028
31	Abbott Laboratories	ABT	0.57358
32	Comcast Corporation Class A	CMCSA	0.56717
33	Adobe Inc.	ADBE	0.56510
34	Walmart Inc.	WMT	0.55191
35	salesforce.com inc.	CRM	0.55141
36	Wells Fargo & Company	WFC	0.54938
37	Accenture Plc Class A	ACN	0.53995
38	Merck & Co. Inc.	MRK	0.53342
39	Intel Corporation	INTC	0.51320
40	Advanced Micro Devices Inc.	AMD	0.48867
41	Danaher Corporation	DHR	0.47905
42	McDonald's Corporation	MCD	0.47497
43	Qualcomm Inc	QCOM	0.45817
44	Union Pacific Corporation	UNP	0.45353
45	AT&T Inc.	T	0.44197
46	Texas Instruments Incorporated	TXN	0.44121
47	Netflix Inc.	NFLX	0.44032
48	NIKE Inc. Class B	NKE	0.43485
49	Lowe's Companies Inc.	LOW	0.4344
50	NextEra Energy Inc.	NEE	0.43431
51	United Parcel Service Inc. Class B	UPS	0.43393
52	Linde plc	LIN	0.42445
53	Bristol-Myers Squibb Company	BMY	0.41829
54	Medtronic Plc	MDT	0.39533
55	Raytheon Technologies Corporation	RTX	0.39157
56	Philip Morris International Inc.	PM	0.38828
57	CVS Health Corporation	CVS	0.38238
58	S&P Global Inc.	SPGI	0.38198
59	Charles Schwab Corp	SCHW	0.36131
60	Morgan Stanley	MS	0.36065
61	Intuit Inc.	INTU	0.35824
62	Amgen Inc.	AMGN	0.35555
63	Honeywell International Inc.	HON	0.35373
64	PayPal Holdings Inc.	PYPL	0.35275
65	ConocoPhillips	COP	0.34890
66	Oracle Corporation	ORCL	0.34794
67	Caterpillar Inc.	CAT	0.32101
68	Applied Materials Inc.	AMAT	0.31900
69	American Express Company	AXP	0.31396
70	Goldman Sachs Group Inc.	GS	0.31190
71	Anthem Inc.	ANTM	0.31058
72	Prologis Inc.	PLD	0.30913
73	Deere & Company	DE	0.3067
74	International Business Machines Corporation	IBM	0.30644
75	Citigroup Inc.	C	0.30427
76	ServiceNow Inc.	NOW	0.30187
77	American Tower Corporation	AMT	0.29781
78	Target Corporation	TGT	0.28822
79	BlackRock Inc.	BLK	0.28282
80	Lockheed Martin Corporation	LMT	0.28146
81	General Electric Company	GE	0.28017
82	Boeing Company	BA	0.27996
83	Starbucks Corporation	SBUX	0.27589
84	Intuitive Surgical Inc.	ISRG	0.26933
85	Altria Group Inc	MO	0.25405
86	Zoetis Inc. Class A	ZTS	0.2453
87	Chubb Limited	CB	0.24339
88	Automatic Data Processing Inc.	ADP	0.24185
89	Micron Technology Inc.	MU	0.24106
90	Booking Holdings Inc.	BKNG	0.23715
91	Stryker Corporation	SYK	0.23676
92	CME Group Inc. Class A	CME	0.23635
93	Mondelez International Inc. Class A	MDLZ	0.23258
94	Analog Devices Inc.	ADI	0.22995
95	3M Company	MMM	0.22771
96	Duke Energy Corporation	DUK	0.21893
97	PNC Financial Services Group Inc.	PNC	0.21838
98	Marsh & McLennan Companies Inc.	MMC	0.21768
99	CSX Corporation	CSX	0.21550
100	Cigna Corporation	CI	0.21501
101	Truist Financial Corporation	TFC	0.20987
102	Crown Castle International Corp	CCI	0.20433
103	U.S. Bancorp	USB	0.20423
104	T-Mobile US Inc.	TMUS	0.2021
105	Becton Dickinson and Company	BDX	0.20130
106	Intercontinental Exchange Inc.	ICE	0.20103
107	TJX Companies Inc	TJX	0.20070
108	Lam Research Corporation	LRCX	0.19834
109	Gilead Sciences Inc.	GILD	0.19833
110	Southern Company	SO	0.19354
111	Regeneron Pharmaceuticals Inc.	REGN	0.19246
112	Charter Communications Inc. Class A	CHTR	0.19125
113	Freeport-McMoRan Inc.	FCX	0.19066
114	Edwards Lifesciences Corporation	EW	0.18744
115	Aon Plc Class A	AON	0.18629
116	EOG Resources Inc.	EOG	0.18388
117	Norfolk Southern Corporation	NSC	0.17873
118	Dominion Energy Inc	D	0.17862
119	Ford Motor Company	F	0.17383
120	Equinix Inc.	EQIX	0.17265
121	Progressive Corporation	PGR	0.17124
122	HCA Healthcare Inc	HCA	0.17111
123	Northrop Grumman Corporation	NOC	0.17102
124	Vertex Pharmaceuticals Incorporated	VRTX	0.17011
125	General Motors Company	GM	0.16936
126	Colgate-Palmolive Company	CL	0.16933
127	Estee Lauder Companies Inc. Class A	EL	0.16879
128	Boston Scientific Corporation	BSX	0.16820
129	Eaton Corp. Plc	ETN	0.16477
130	Activision Blizzard Inc.	ATVI	0.16393
131	Illinois Tool Works Inc.	ITW	0.16190
132	Waste Management Inc.	WM	0.16029
133	Sherwin-Williams Company	SHW	0.15963
134	Fiserv Inc.	FISV	0.15932
135	Moderna Inc.	MRNA	0.15888
136	Capital One Financial Corp	COF	0.15668
137	Newmont Corporation	NEM	0.15655
138	Fidelity National Information Services Inc.	FIS	0.15517
139	Emerson Electric Co.	EMR	0.15253
140	Humana Inc.	HUM	0.15140
141	FedEx Corporation	FDX	0.14911
142	Public Storage	PSA	0.14893
143	Schlumberger NV	SLB	0.14762
144	Pioneer Natural Resources Company	PXD	0.14631
145	KLA Corporation	KLAC	0.14308
146	General Dynamics Corporation	GD	0.14218
147	Illumina Inc.	ILMN	0.14155
148	Moody's Corporation	MCO	0.13926
149	Dollar General Corporation	DG	0.13854
150	Occidental Petroleum Corporation	OXY	0.13750
151	Centene Corporation	CNC	0.13706
152	American International Group Inc.	AIG	0.13542
153	Air Products and Chemicals Inc.	APD	0.13519
154	NXP Semiconductors NV	NXPI	0.13445
155	Sempra Energy	SRE	0.13224
156	L3Harris Technologies Inc	LHX	0.13067
157	MetLife Inc.	MET	0.13044
158	Roper Technologies Inc.	ROP	0.13014
159	Cognizant Technology Solutions Corporation Class A	CTSH	0.12721
160	Marathon Petroleum Corporation	MPC	0.12711
161	American Electric Power Company Inc.	AEP	0.12694
162	O'Reilly Automotive Inc.	ORLY	0.12645
163	Archer-Daniels-Midland Company	ADM	0.12522
164	Marriott International Inc. Class A	MAR	0.12518
165	Autodesk Inc.	ADSK	0.12443
166	Dow Inc.	DOW	0.12438
167	Synopsys Inc.	SNPS	0.12397
168	Johnson Controls International plc	JCI	0.12347
169	Amphenol Corporation Class A	APH	0.12135
170	McKesson Corporation	MCK	0.12050
171	IDEXX Laboratories Inc.	IDXX	0.11983
172	Travelers Companies Inc.	TRV	0.11916
173	DexCom Inc.	DXCM	0.11753
174	Chipotle Mexican Grill Inc.	CMG	0.11716
175	Prudential Financial Inc.	PRU	0.11675
176	TE Connectivity Ltd.	TEL	0.11627
177	Simon Property Group Inc.	SPG	0.11560
178	IQVIA Holdings Inc	IQV	0.11428
179	Ecolab Inc.	ECL	0.11415
180	Exelon Corporation	EXC	0.11352
181	Cadence Design Systems Inc.	CDNS	0.11336
182	Hilton Worldwide Holdings Inc	HLT	0.11255
183	Microchip Technology Incorporated	MCHP	0.11203
184	Agilent Technologies Inc.	A	0.11094
185	Fortinet Inc.	FTNT	0.10993
186	MSCI Inc. Class A	MSCI	0.10978
187	Corteva Inc	CTVA	0.10947
188	Carrier Global Corp.	CARR	0.10924
189	AutoZone Inc.	AZO	0.10922
190	Kimberly-Clark Corporation	KMB	0.10919
191	Sysco Corporation	SYY	0.10899
192	Paychex Inc.	PAYX	0.10748
193	Welltower Inc.	WELL	0.10722
194	Bank of New York Mellon Corporation	BK	0.10677
195	HP Inc.	HPQ	0.10638
196	Baxter International Inc.	BAX	0.10609
197	DuPont de Nemours Inc.	DD	0.10511
198	Motorola Solutions Inc.	MSI	0.10442
199	Digital Realty Trust Inc.	DLR	0.10432
200	Global Payments Inc.	GPN	0.10361
201	Nucor Corporation	NUE	0.10321
202	Aflac Incorporated	AFL	0.10245
203	General Mills Inc.	GIS	0.10241
204	Williams Companies Inc.	WMB	0.10236
205	Kroger Co.	KR	0.10113
206	ResMed Inc.	RMD	0.10076
207	Realty Income Corporation	O	0.10070
208	Allstate Corporation	ALL	0.10045
209	Xcel Energy Inc.	XEL	0.10027
210	Trane Technologies plc	TT	0.09992
211	Parker-Hannifin Corporation	PH	0.09961
212	Constellation Brands Inc. Class A	STZ	0.09749
213	Valero Energy Corporation	VLO	0.09732
214	Phillips 66	PSX	0.09708
215	Devon Energy Corporation	DVN	0.09676
216	SBA Communications Corp. Class A	SBAC	0.09663
217	Electronic Arts Inc.	EA	0.0952
218	Dollar Tree Inc.	DLTR	0.09339
219	Yum! Brands Inc.	YUM	0.09335
220	eBay Inc.	EBAY	0.09324
221	TransDigm Group Incorporated	TDG	0.09276
222	Cintas Corporation	CTAS	0.0923
223	AvalonBay Communities Inc.	AVB	0.09177
224	Public Service Enterprise Group Inc	PEG	0.09153
225	Kinder Morgan Inc Class P	KMI	0.09145
226	Arthur J. Gallagher & Co.	AJG	0.09112
227	Walgreens Boots Alliance Inc	WBA	0.09107
228	Ameriprise Financial Inc.	AMP	0.08980
229	Discover Financial Services	DFS	0.08912
230	SVB Financial Group	SIVB	0.08843
231	T. Rowe Price Group	TROW	0.08839
232	Ross Stores Inc.	ROST	0.08801
233	Fastenal Company	FAST	0.08775
234	Verisk Analytics Inc	VRSK	0.08724
235	Otis Worldwide Corporation	OTIS	0.08712
236	International Flavors & Fragrances Inc.	IFF	0.08623
237	State Street Corporation	STT	0.08603
238	Mettler-Toledo International Inc.	MTD	0.08577
239	Fifth Third Bancorp	FITB	0.08552
240	Halliburton Company	HAL	0.08535
241	Consolidated Edison Inc.	ED	0.08523
242	Rockwell Automation Inc.	ROK	0.08402
243	PACCAR Inc	PCAR	0.08374
244	Aptiv PLC	APTV	0.08363
245	Align Technology Inc.	ALGN	0.08352
246	AMETEK Inc.	AME	0.08201
247	Baker Hughes Company Class A	BKR	0.08186
248	CBRE Group Inc. Class A	CBRE	0.08168
249	PPG Industries Inc.	PPG	0.08160
250	Equity Residential	EQR	0.08132
251	First Republic Bank	FRC	0.08108
252	Old Dominion Freight Line Inc.	ODFL	0.08088
253	WEC Energy Group Inc	WEC	0.08072
254	Biogen Inc.	BIIB	0.08069
255	Hershey Company	HSY	0.08029
256	West Pharmaceutical Services Inc.	WST	0.08006
257	Ball Corporation	BLL	0.07992
258	ONEOK Inc.	OKE	0.07962
259	Twitter Inc.	TWTR	0.07952
260	Weyerhaeuser Company	WY	0.07914
261	Cummins Inc.	CMI	0.07881
262	Equifax Inc.	EFX	0.07791
263	Monster Beverage Corporation	MNST	0.07790
264	Willis Towers Watson Public Limited Company	WTW	0.07766
265	Corning Inc	GLW	0.07742
266	Eversource Energy	ES	0.07737
267	Keysight Technologies Inc	KEYS	0.07716
268	American Water Works Company Inc.	AWK	0.07635
269	Arista Networks Inc.	ANET	0.07566
270	Expedia Group Inc.	EXPE	0.07504
271	Cerner Corporation	CERN	0.07405
272	Republic Services Inc.	RSG	0.07385
273	Alexandria Real Estate Equities Inc.	ARE	0.07324
274	Copart Inc.	CPRT	0.07287
275	D.R. Horton Inc.	DHI	0.07245
276	Match Group Inc.	MTCH	0.07218
277	LyondellBasell Industries NV	LYB	0.07217
278	ANSYS Inc.	ANSS	0.07205
279	Kraft Heinz Company	KHC	0.07155
280	Hess Corporation	HES	0.07145
281	Tractor Supply Company	TSCO	0.07106
282	Laboratory Corporation of America Holdings	LH	0.07024
283	Extra Space Storage Inc.	EXR	0.0701
284	Tyson Foods Inc. Class A	TSN	0.06980
285	Zimmer Biomet Holdings Inc.	ZBH	0.06821
286	Southwest Airlines Co.	LUV	0.06763
287	Edison International	EIX	0.06715
288	United Rentals Inc.	URI	0.06701
289	DTE Energy Company	DTE	0.06616
290	Lennar Corporation Class A	LEN	0.06555
291	Stanley Black & Decker Inc.	SWK	0.06509
292	Enphase Energy Inc.	ENPH	0.06505
293	Vulcan Materials Company	VMC	0.06491
294	Mid-America Apartment Communities Inc.	MAA	0.06454
295	McCormick & Company Incorporated	MKC	0.06449
296	Gartner Inc.	IT	0.06449
297	Northern Trust Corporation	NTRS	0.06442
298	Hartford Financial Services Group Inc.	HIG	0.06407
299	CDW Corp.	CDW	0.06406
300	FirstEnergy Corp.	FE	0.06403
301	Martin Marietta Materials Inc.	MLM	0.06386
302	Church & Dwight Co. Inc.	CHD	0.06380
303	Delta Air Lines Inc.	DAL	0.06352
304	Ventas Inc.	VTR	0.06331
305	M&T Bank Corporation	MTB	0.06158
306	Albemarle Corporation	ALB	0.06136
307	Ameren Corporation	AEE	0.06098
308	Diamondback Energy Inc.	FANG	0.06088
309	STERIS Plc	STE	0.06086
310	Mosaic Company	MOS	0.06058
311	Dover Corporation	DOV	0.06050
312	AmerisourceBergen Corporation	ABC	0.0604
313	PerkinElmer Inc.	PKI	0.06028
314	KeyCorp	KEY	0.06011
315	Zebra Technologies Corporation Class A	ZBRA	0.05984
316	Paramount Global Class B	PARA	0.05968
317	Essex Property Trust Inc.	ESS	0.05955
318	Regions Financial Corporation	RF	0.05935
319	Entergy Corporation	ETR	0.05926
320	Best Buy Co. Inc.	BBY	0.05882
321	Huntington Bancshares Incorporated	HBAN	0.05880
322	Skyworks Solutions Inc.	SWKS	0.05867
323	Fortive Corp.	FTV	0.05841
324	Hewlett Packard Enterprise Co.	HPE	0.05836
325	W.W. Grainger Inc.	GWW	0.05828
326	Ulta Beauty Inc	ULTA	0.05667
327	Citizens Financial Group Inc.	CFG	0.05660
328	Duke Realty Corporation	DRE	0.05605
329	VeriSign Inc.	VRSN	0.05529
330	Ingersoll Rand Inc.	IR	0.05501
331	Cooper Companies Inc.	COO	0.05496
332	Synchrony Financial	SYF	0.05485
333	Nasdaq Inc.	NDAQ	0.05467
334	PPL Corporation	PPL	0.05439
335	Waters Corporation	WAT	0.05424
336	Teledyne Technologies Incorporated	TDY	0.05408
337	Coterra Energy Inc.	CTRA	0.05369
338	CF Industries Holdings Inc.	CF	0.05311
339	Molina Healthcare Inc.	MOH	0.05299
340	Cincinnati Financial Corporation	CINF	0.05297
341	Teradyne Inc.	TER	0.05261
342	Generac Holdings Inc.	GNRC	0.05224
343	Raymond James Financial Inc.	RJF	0.05189
344	CMS Energy Corporation	CMS	0.05188
345	NetApp Inc.	NTAP	0.05176
346	Signature Bank	SBNY	0.05157
347	Monolithic Power Systems Inc.	MPWR	0.05156
348	FLEETCOR Technologies Inc.	FLT	0.05146
349	Pool Corporation	POOL	0.05092
350	Hologic Inc.	HOLX	0.05023
351	Akamai Technologies Inc.	AKAM	0.05014
352	V.F. Corporation	VFC	0.04946
353	Seagate Technology Holdings PLC	STX	0.04944
354	Genuine Parts Company	GPC	0.04900
355	CenterPoint Energy Inc.	CNP	0.04896
356	J.B. Hunt Transport Services Inc.	JBHT	0.04861
357	Marathon Oil Corporation	MRO	0.04860
358	Omnicom Group Inc	OMC	0.04856
359	Catalent Inc	CTLT	0.04843
360	Etsy Inc.	ETSY	0.04807
361	Expeditors International of Washington Inc.	EXPD	0.04804
362	Jacobs Engineering Group Inc.	J	0.04803
363	Healthpeak Properties Inc.	PEAK	0.04789
364	Amcor PLC	AMCR	0.04783
365	Westinghouse Air Brake Technologies Corporation	WAB	0.04760
366	Quest Diagnostics Incorporated	DGX	0.04737
367	Boston Properties Inc.	BXP	0.04734
368	Broadridge Financial Solutions Inc.	BR	0.04723
369	Trimble Inc.	TRMB	0.04711
370	International Paper Company	IP	0.04697
371	Garmin Ltd.	GRMN	0.04686
372	Quanta Services Inc.	PWR	0.04679
373	Principal Financial Group Inc.	PFG	0.04672
374	Take-Two Interactive Software Inc.	TTWO	0.04636
375	Tyler Technologies Inc.	TYL	0.04630
376	Darden Restaurants Inc.	DRI	0.04543
377	CarMax Inc.	KMX	0.04524
378	Bio-Techne Corporation	TECH	0.04487
379	UDR Inc.	UDR	0.04471
380	Caesars Entertainment Inc	CZR	0.04462
381	FMC Corporation	FMC	0.04462
382	SolarEdge Technologies Inc.	SEDG	0.04442
383	Constellation Energy Corporation	CEG	0.04441
384	Textron Inc.	TXT	0.04430
385	MGM Resorts International	MGM	0.04427
386	Royal Caribbean Group	RCL	0.04418
387	Paycom Software Inc.	PAYC	0.04406
388	Clorox Company	CLX	0.04359
389	Teleflex Incorporated	TFX	0.04333
390	FactSet Research Systems Inc.	FDS	0.04324
391	NVR Inc.	NVR	0.04315
392	Cardinal Health Inc.	CAH	0.04313
393	Brown & Brown Inc.	BRO	0.04248
394	Xylem Inc.	XYL	0.04241
395	AES Corporation	AES	0.04168
396	Celanese Corporation	CE	0.04154
397	EPAM Systems Inc.	EPAM	0.04149
398	Kellogg Company	K	0.04142
399	Conagra Brands Inc.	CAG	0.04114
400	Carnival Corporation	CCL	0.04085
401	Alliant Energy Corp	LNT	0.04076
402	Domino's Pizza Inc.	DPZ	0.04036
403	NortonLifeLock Inc.	NLOK	0.04026
404	IDEX Corporation	IEX	0.04019
405	Atmos Energy Corporation	ATO	0.03998
406	Western Digital Corporation	WDC	0.03998
407	Evergy Inc.	EVRG	0.03973
408	Packaging Corporation of America	PKG	0.03965
409	Live Nation Entertainment Inc.	LYV	0.03911
410	Leidos Holdings Inc.	LDOS	0.03905
411	Eastman Chemical Company	EMN	0.03893
412	Kimco Realty Corporation	KIM	0.03866
413	Iron Mountain Inc.	IRM	0.03848
414	Qorvo Inc.	QRVO	0.03838
415	APA Corp.	APA	0.03832
416	Interpublic Group of Companies Inc.	IPG	0.03831
417	Avery Dennison Corporation	AVY	0.03789
418	Charles River Laboratories International Inc.	CRL	0.03780
419	Masco Corporation	MAS	0.03774
420	Hormel Foods Corporation	HRL	0.03757
421	J.M. Smucker Company	SJM	0.03751
422	Incyte Corporation	INCY	0.03739
423	ABIOMED Inc.	ABMD	0.0373
424	C.H. Robinson Worldwide Inc.	CHRW	0.03662
425	Jack Henry & Associates Inc.	JKHY	0.03656
426	Howmet Aerospace Inc.	HWM	0.03604
427	MarketAxess Holdings Inc.	MKTX	0.03597
428	Host Hotels & Resorts Inc.	HST	0.03577
429	W. R. Berkley Corporation	WRB	0.03568
430	Advance Auto Parts Inc.	AAP	0.03567
431	United Airlines Holdings Inc.	UAL	0.03554
432	Robert Half International Inc.	RHI	0.03538
433	Loews Corporation	L	0.03483
434	Fox Corporation Class A	FOXA	0.03482
435	Bath & Body Works Inc.	BBWI	0.03446
436	Viatris Inc.	VTRS	0.03437
437	WestRock Company	WRK	0.03393
438	Comerica Incorporated	CMA	0.03390
439	LKQ Corporation	LKQ	0.03383
440	Cboe Global Markets Inc	CBOE	0.03351
441	Citrix Systems Inc.	CTXS	0.03349
442	Las Vegas Sands Corp.	LVS	0.03304
443	Bio-Rad Laboratories Inc. Class A	BIO	0.03301
444	Nordson Corporation	NDSN	0.03296
445	Henry Schein Inc.	HSIC	0.03238
446	F5 Inc.	FFIV	0.03218
447	PulteGroup Inc.	PHM	0.03208
448	Fortune Brands Home & Security Inc.	FBHS	0.03180
449	Whirlpool Corporation	WHR	0.03176
450	Brown-Forman Corporation Class B	BF.B	0.03148
451	NiSource Inc	NI	0.03136
452	PTC Inc.	PTC	0.03133
453	Hasbro Inc.	HAS	0.03082
454	Everest Re Group Ltd.	RE	0.03037
455	Snap-on Incorporated	SNA	0.03033
456	Juniper Networks Inc.	JNPR	0.03010
457	Lincoln National Corporation	LNC	0.02991
458	Zions Bancorporation N.A.	ZION	0.02927
459	Universal Health Services Inc. Class B	UHS	0.02916
460	American Airlines Group Inc.	AAL	0.02859
461	DENTSPLY SIRONA Inc.	XRAY	0.02846
462	Allegion PLC	ALLE	0.02823
463	Tapestry Inc.	TPR	0.02800
464	Regency Centers Corporation	REG	0.02754
465	Sealed Air Corporation	SEE	0.02735
466	Assurant Inc.	AIZ	0.02684
467	Lumen Technologies Inc.	LUMN	0.02665
468	Molson Coors Beverage Company Class B	TAP	0.02654
469	NRG Energy Inc.	NRG	0.02547
470	Pentair plc	PNR	0.02523
471	BorgWarner Inc.	BWA	0.02467
472	Globe Life Inc.	GL	0.02466
473	A. O. Smith Corporation	AOS	0.02420
474	People's United Financial Inc.	PBCT	0.02415
475	Ceridian HCM Holding Inc.	CDAY	0.02376
476	News Corporation Class A	NWSA	0.0236
477	Organon & Co.	OGN	0.02337
478	Campbell Soup Company	CPB	0.02334
479	Newell Brands Inc	NWL	0.02309
480	Nielsen Holdings Plc	NLSN	0.02303
481	Pinnacle West Capital Corporation	PNW	0.02253
482	Federal Realty Investment Trust	FRT	0.02202
483	DXC Technology Co.	DXC	0.02195
484	Wynn Resorts Limited	WYNN	0.02178
485	Mohawk Industries Inc.	MHK	0.02170
486	Huntington Ingalls Industries Inc.	HII	0.02115
487	DISH Network Corporation Class A	DISH	0.02093
488	Lamb Weston Holdings Inc.	LW	0.02073
489	Franklin Resources Inc.	BEN	0.02051
490	Rollins Inc.	ROL	0.02041
491	DaVita Inc.	DVA	0.02026
492	Discovery Inc. Class C	DISCK	0.02009
493	Penn National Gaming Inc.	PENN	0.01996
494	Invesco Ltd.	IVZ	0.01943
495	Norwegian Cruise Line Holdings Ltd.	NCLH	0.01927
496	Vornado Realty Trust	VNO	0.01917
497	Alaska Air Group Inc.	ALK	0.01815
498	PVH Corp.	PVH	0.01568
499	Ralph Lauren Corporation Class A	RL	0.01546
500	Fox Corporation Class B	FOX	0.01468
501	IPG Photonics Corporation	IPGP	0.01127
502	Discovery Inc. Class A	DISCA	0.01120
503	Under Armour Inc. Class A	UAA	0.00873
504	Under Armour Inc. Class C	UA	0.00813
505	News Corporation Class B	NWS	0.00751

 

S&P 500 Index Final Thoughts

The S&P 500 Index is a good overall barometer for the larger United States (U.S.) economy.  The index is sufficiently comprehensive to be a proxy for the overall U.S. economy.   

Many view the S&P 500 as the key index for the US stock market, US economy, and its trends.  It is chosen by market participants, policy makers, and institutions alike to be the measure of the relative strength or weakness of the U.S. economy.  Warren Buffet monitors the S&P 500 index valuation to determine if the U.S. stock market is expensive or is trading at historical discounts.

The S&P 500 is broadly diversified across the U.S. equity market in that the index represents all sectors of the U.S. stock market.  Investing money into a S&P 500 index exchange traded fund (etf) or mutual fund is considered relatively low market risk because of the broad diversification.  

To learn more about investing check out the beginner's guide to stock investing.

(C) 2022-23 jspublishing.blogspot.com

Dividend Investing Strategy

Table of Contents:

• Introduction
• Dividend Investing Strategies
• Dividend Investing Financial Ratios
• Dividend Payout Ratio
• Free Cash Flow
• Operating Profit Margin
• Sales Growth
• Return On Invested Capital
• Asset Turnover
• Price to Earnings Ratio
• Total Shareholder Return
• Financial Ratio Summary
• Final Thoughts on Dividend Investing

Introduction 

Owning shares of stock in a company that pays a dividend is a great way to generate passive income.  The dividend is a stream of income you receive usually on a quarterly basis and the dividend income would be on top of any capital gain incurred when the company stock price increases.

When a dividend is paid out, you are getting a portion of the company profits.  The dividend yield is one financial ratio important to compare when looking for dividend paying stocks.  

Dividend yield explained.  

The dividend yield is the percentage of the share price the company pays out dividends each year.  

In December 2021, the dividend yield of the S&P 500 was 1.27%.  

If you owned 1 share of the S&P 500 fund, you would receive $1.27 in dividends annually.

Stocks paying a dividend usually reward investors over the long term (5 – 10 years) as long as the company and industry are stable.

Dividend Investing Strategies

There a 3 common dividend investing strategies:  1) High Dividend growth rate, 2) High Dividend Yield, 3) Dividend Reinvestment Plans (DRIPS)

High Dividend Growth Rate

The high dividend growth rate strategy focuses on buying stock in companies that pay dividends but are growing the payout rapidly.  With this strategy you are buying shares in a profitable company initially with a dividend payout that maybe low, however, as the company rapidly increases the dividend payout over a five- or 10-year period, you will make a large amount of income.

High Dividend Yield

The high dividend yield approach focuses on companies that are slowly growing and have a high cash flow.  This usually allows the companies to fund large dividend payments that provide you with immediate income.

Dividend Reinvestment Plans (DRIPS)

Many brokers and companies paying dividends offer Dividend Reinvestment plans (DRIP).  This allows you to reinvest your dividends to purchase more shares of stock instead of taking the dividend as cash.

The DRIP strategy focuses on companies that offer Dividend Reinvestment plans.  Then analyzing and identifying high quality companies with safe dividends and starting the dividend reinvestment plan. Many folks use this strategy to invest for the long term.  Once the dividend reinvestment plan is setup every dividend paid will reinvest in more shares of the company and will compound the income stream over time.

Before investing in dividend paying companies, you will need to understand the health of their business and verify the dividend payout is safe.  It is important to do your own research before investing in the stock of a company.  

Dividend Investing Financial Ratios

Several financial ratios are helpful in evaluating the performance of the underlying business.  Financial ratios are calculations and/or metrics used to research and compare investment opportunities.

Many financial ratios are included in financial statements, annual reports, and investor presentations.  Others you will need to calculate yourself.  Examples of financial ratios include:  Quick ratio, Current ratio, price to earnings, debt coverage, return on assets. 

We now will review financial ratios that are helpful when evaluating dividend paying companies.

Dividend Payout Ratio

The dividend payout ratio measures the percent of a companies’ earnings paid out for the dividend.   Companies with lower payout ratios are assumed safer.  A divided from a company with a high payout ratio (above 75%) is assumed riskier since a majority of the company’s earnings are used to payout the dividend.    

The dividend payout ratio formula is calculated as:  Amount of Dividends paid / Earnings generated for time period.  

If a company paid $3 in dividends in a year and earned $10 that year, the dividend payout ratio is:  $3/$10 = 30%.

Dividend payout ratios of less than 60% are generally considered safe.  A higher payout ratio could be considered if a business is extremely stable and the company maintains strong financial health.  For example, a higher payout ratio maybe considered safe for a regulated utility business.

Reviewing the trend of the dividend payout ratio over time (3 – 5 years) is important to determine if the payout ratio is consistent or not.  Companies with greater consistency in the payout ratio are generally safer.

Free Cash Flow

It is important to understand the free cash flow of the business.  Free cash flow is the fuel for dividends and stock repurchases.

The calculation for free cash flow is:           

Cash Flow from Operations = Net Income + Non-Cash Items + Changes in Working Capital

Minus          

Company Capital Expenditures (money spent on property, plant, and equipment)

Companies that generate free cash flow consistently in virtually every economic environment are much safer.  And dividends from companies with consistent and growing free cash flow are considered safer and more reliable.

Operating Profit Margin

Generally speaking operating profits represent the company’s earnings before interest and taxes.  This allows the analysis to focus on comparing the profitability of actual operations.  A company with a high and stable operating profit margin is very desirable.

The formula for Operating Profit Margin is:  Operating Profits / Total Sales

It is important to understand the level and consistency of the company’s operating profit margin.  Company’s with high and stable operating profit margins are more desirable as they help earnings compound quicker.

Sales Growth

Trends in sales growth tell us about the stability or volatility of a company’s business model and the ability of it to continue to expand.

Companies with stable sales growth in different economic conditions are more desirable and their dividend safer.

Sales growth is calculated by subtracting one revenue period from another revenue period and expressing the difference as a percentage of the former period.

Example of Sales growth calculation.  Company X sales in 2019 were $200.  Company X sales in 2020 were $250.

Sales growth for company X in 2020 is calculated as ($250 – 200) / $200 = 25%.

It is important to look at both the level and consistency of sales growth over several years to determine the strength of the business model of the company.

Return on Invested Capital

Companies earning higher returns on invested capital are compounding capital faster and are considered more desirable companies to invest in.

Return on invested capital (ROIC) assesses a company's efficiency at allocating the capital under its control to profitable investments. Comparing ROIC to a company’s weighted average cost of capital (WACC) reveals whether invested capital is being used effectively.

Return on invested capital measures a company’s return on equity and debt.  Measuring a company’s return on both equity and debt, allows for a better comparison of companies with different capital structures.

The formula for Return on Invested Capital is:  ROIC = NOPAT / Invested Capital

NOPAT = Net Operating Profit After Tax

Or another formula is Return on Invested Capital = (Net Income – Dividends) / (Debt + Equity)

It is important to look at both the level and consistency of Return on Invested capital over several years.

Companies with a stable, double digit return on invested capital over several years are more desirable to invest in and their dividends are considered safer.  

Asset Turnover

Asset Turnover measures how many dollars of sales each dollar of assets generated.  This tells us how efficiently is at generating sales from its assets.

The formula for Asset Turnover is:  Total Sales / Total Assets

More profits can be generated by companies that generate great sales from their asset base.  Companies with low operating margins can generate a solid return on invested capital for shareholders when the asset turnover ratio is high.

Companies with a high asset turnover ratio are more desirable and generally speaking their dividends are safer.  Companies with high asset turnover ratios generally have higher return on invested capital.

Price to Earnings Ratio

One of the most popular valuation ratios investors use is the Price to Earnings ratio.  The formula for calculating is very simple.

Price to Earnings ratio formula:  Company Stock price / Earnings per share over 1 year period

Generally speaking companies that trade at Price to Earnings ratios of less than 20 are more reasonably priced.  

Total Shareholder Return

While tempting to focus on only the dividend yield of a dividend paying stock, it is important to look at the total return on the investment. 

Total Shareholder return measures both the stock price increase and any dividends paid.  The total shareholder return is the measure investors should look at.

Total Shareholder Return formula: (Stock price increase + Dividend paid per share) / (Per share purchase price)

For example:  You purchase Company Y at $100 a share.  Company Y paid a $5 per share dividend in the year.  At the end of the year company Y stock traded at $110 a share.  The Total Share holder return is calculated as follows:   Stock price increase = $110 - $100 = $10.  $10 + $5 dividend per share = $15.

          $15 / $100 = 15%.  So the total shareholder return is 15% 

Companies with a Total Shareholder return that outperforms the S&P 500 or DJIA are more desirable than companies where the Total Shareholder return is below the returns of the S&P 500 and/or DJIA.

Financial Ratio Summary

For dividend investing it is essential to analyze different companies using the financial ratios to identify high quality companies that pay safe, growing dividends.

These financial ratios help determine the underlying quality of the business and the safety of the company’s dividend.

Other important aspects to examine are debt levels, recession performance of the company, near-term business trends, industry factors and trends, and comparison of the company to other companies in the industry.

Final Thoughts on Dividend Investing

Understanding and using financial ratios to assess dividend paying investments is important.  Identifying high quality businesses where the dividend payout is safe and growing will provide a margin of safety for your investment.

Dividend investing is a worthwhile long term investing strategy especially if you reinvest the dividends.  The compounding effect of the dividend reinvestment will generate a decent stream of cash flow after several years.

To be a successful dividend investor it is important to take the time to assess different investment opportunities using at least the above financial ratios.  There are many other financial ratios to consider so determine any others that are important and get as complete of a profile of the business before investing.   This will help to ensure that you sidestep all the avoidable mistakes when investing.

To learn more about stock investing check out the "Beginner's Guide to Stock (Equity) Investing" post.

(C) 2022-23 jspublishing.blogspot.com

Beginner’s Guide to Stock (Equity) Investing

Beginner's Guide to Stock Investing

Over the last century the stock market return is about 10% per year. 

Returns in any year may be far below or above the average.  It is important to have a long term time horizon for stock investments where you will not need the money for 3 to 5 years since there is greater risk when investing in equity (stocks).

This beginner's guide to stock investing will help you to understand the basic steps of fundamental stock analysis.

Table of Contents:

Benchmarks

Stock Analysis

Fundamental Stock Analysis Steps

Beginner's Guide to Stock Summary

Benchmarks

It is important to be aware of the applicable investment benchmark for your stock as an investor.  All types of investment asset classes have benchmarks.  A benchmark is an index created to include multiple securities to represent some aspect of the total market.

Equity - The 2 most popular benchmarks in the equity market are the S&P 500 and the Dow Jones Industrial Average.

Fixed income (bonds and bond funds) – Top benchmarks for fixed income assets include Barclays Capital U.S. Treasury Bond Index, Barclays Capital U.S. Corporate High Yield Bond Index, and Barclays Capital U.S. Aggregate Bond Index

It is important to compare any investment against the appropriate benchmark for that investment asset class.

Stock Analysis

Before buying a stock, bond, or other investment vehicle it is important to analyze the investment and to get as complete of an understanding of the financial health, prospects, and trends of the investment as possible.

There are 2 theories of stock analysis:  Fundamental stock analysis and technical stock analysis.  This article focuses on the former (fundamental stock analysis) and provides the basic steps of fundamental stock analysis.

Fundamental Stock Analysis Steps

There are 4 primary steps to analyze an equity (stock) investment.

1. Gather information about the Company – Grab the Company financial reports, financial ratios from investment sites such as Yahoo Finance, and any relevant financial data you can find about the company
2. Review the Company's Financial Metrics & Data - Understand the company’s financial reports, data, and prospects
3. Understand the Company - Strengths, business model, management, etc.
4. Determine Best Investment Opportunity - Get as complete a profile of the company as possible and compare to find the best investment opportunity

1. Gather Information about the Company 

You will want to start by understanding the company’s financials and the fundamentals of the company.  

• Review the latest annual report (Form 10-K) for the company.
• Review the company’s balance sheet, income statement, and the statement of cash flows.
• Read the company quarterly report (Form 10-Q) which reviews the quarterly operational and financial results.
• Research financial data on the company through investment or brokerage websites such as Yahoo! Finance or Vanguard.com.

Once you have gathered the financial reports and data move on to Step 2.

2. Review the Company's Financial Metrics & Data

Focus on the following information and metrics in the financial reports and data.  This will allow you to understand the inner financial workings and health of the company.  

Note and references to ttm you find means trailing twelve months.

Return on Equity – this is how much profit a company generates with each shareholder dollar invested in percentage terms.   Calculated by dividing the company’s annual net income by shareholder equity.  This is a measure of how efficient a company is at generating profits.

Return on Assets – shows the percentage of the company’s profits generated with each dollar of assets.  It is calculated by dividing the company’s annual net income by total assets.  Again this is a measure of how efficient the company is at generating profits.

Beware that a company can artificially inflate return on equity by buying back shares to reduce shareholder equity and likewise can inflate return on assets by taking on more debt to increase the amount of assets.

Price-earnings ratio (P/E) – The P/E tells you how much investors are willing to pay to receive $1 of the company’s current earnings.  The company’s trailing P/E ratio is calculated by dividing a company’s current stock price by its earnings per share (over the last 12 months).  The forward P/E is calculated by dividing the stock price by the Analyst’s forecasted earnings.  

Revenue – Revenue can be itemized into “operating” and “non-operating” revenue.  It is the amount of money a company received during the specified reporting period and is referred to as the “top line”.  

Operating revenue is generated from the company’s core business so that is the most important revenue.

Non-operating revenue usually comes from a one-time event such as selling an asset.

Net-Income (Earnings) – This is the total amount of money a company made after operating expenses, taxes, and depreciation are subtracted from revenue.  This is referred to as the “bottom-line”.  

Earnings per share (EPS) – Earnings (net income) divided by the total # of shares available to trade.  This shows a company’s profitability on a per-share basis.  

Earnings are not a perfect financial measure since it doesn’t tell you how efficiently the company uses its capital.  

There are several balance sheet metrics that are good to look, also, such as long-term debt to equity.  Cash on hand versus short term debt.  

Additional financial metrics and ratios exist to get a good understanding of the inner financial workings of a company.  The ones listed are the basic ones to start with.  And as you mature as an investor you will likely look at other metrics such as Operating margin, the Quick ratio, Dividend yield, PEG ratio, etc.

3.    Understand the Company - strengths, business model, etc.

The fundamental analysis and data in step 2 helps to understand the financial profile of the company but it doesn’t tell you the basics of the business and the industry characteristics the business operates in.  It is important to understand the advantages and disadvantages of the business, the management experience, and the strategy of the company.

Likewise, before you invest your hard earned dollars in a stock, it is important to understand the company’s operations and prospects within the industry.

When purchasing a stock you are investing a personal stake in the business so you want to make sure the company’s prospects are good in the industry and that you understand the business operations.

Here are some characteristics of the business to understand:

Is management experienced and are they good stewards of the business? – What is the experience level of the management team?  How diverse is the company’s board?  Are there independent thinkers on the board?  Investigate the management teams thinking and views by reading the annual reports and listening in or reviewing the company manuscripts to understand the strategy and how management speaks about the company prospects and/or challenges.

What could potentially go wrong?  What fundamental changes could affect the business’s ability to grow over many years?  Look for potential red flags by doing what if scenarios.  Possible red flags could be a new leader is taking the business into a new uncharted territory, lawsuits pending against the company, issues with the core business or products, new technology that could obsolete the company’s products or services.

Does the company have a competitive advantage?  Does the business have a unique position within the industry?  Is the business difficult to compete against – huge start up costs, etc.  

Competitive advantages include – business model, patent ownership, operational excellence, high switching costs, power in the industry, distribution channels, brand recognition.

What is the business model or how does the company make money?  Invest in companies you truly understand.  Understand how the business makes money.  Is it clear how the company makes money and what their business model is?  Is the business model something you understand?

4.    Determine the Best Investment Opportunity

To pick the best investment opportunity for you it is important to make a decision based on the most complete picture you can.  That is why it is important to review and understand all the information you have gathered in steps 1, 2, and 3.  

Putting together a well-informed profile of the company including the advantages and disadvantages, how it compares in the industry, and any unique characteristics of the business will allow you to determine the best investment opportunity.  

It is important to take a look at historical data for the company.  

• Does the company have a trend of rising revenue and profitability?  
• How does the company perform during tough economic periods?  
• How resilient is the company’s balance sheet?  

It is important to look for companies with a track record of delivering shareholder value over time and that have a history of improving performance and profitability.

Likewise, it is important to compare how the company performs against industry benchmarks and how it compares to the same or similar businesses.

Once you have completed all four steps and you have as complete a picture as you can get on the company, it is time to decide if this company is a good investment.  If not, continue to analyze other potential stocks using these four (4) steps to determine the best potential stock for your investment portfolio.

Beginner's Guide to Stock Summary

It is key to understand as complete of a picture as you can about an investment before buying.  

There are four (4) important steps to analyze a company.  

First you will want to gather financial data and reports for the company such as annual and quarterly reports.  Second, you will want to look at important financial measures for the business such as revenue, net income, return on equity, etc. to understand the financial heath and trends of the company.  Next, you will want to understand unique advantages and disadvantages of the company such as how good is the management team, does the business have a unique competitive advantage, what is the business model, and what could go wrong.  Finally, you will want to compile as complete of a profile for the business as possible, what are the historical trends for the business, how does the business compare against industry averages and similar businesses in the industry, how resilient is the balance sheet during tough economic conditions, etc. 

This will enable you to determine the best investment opportunity for your portfolio.  

To learn more about investing check out these recent posts:

• Dividend Investing Strategy
• S&P 500 Index
• Dow Jones Industrial Average

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