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The Most Successful IPOs of All Time

2016 was not a good year for initial public offerings. Only 105 companies made a debut on the U.S. stock exchanges, which represents a decline of 40% from 2015. In addition, it was a failure that hasn’t happened since the 2009 financial crisis.

A question arises: what happened and why did IPOs vanish? Some experts believe that the companies gained access to capital in the private market. However, they also think that general concern about the election and Brexit also played a certain part.

Nevertheless, the next few years could be different. A few of the high-profile IPOs that had a decent success might influence others to go public.

Still, it is too soon to tell. Therefore, let’s take a look at some of the most successful IPOs of all time.

Alibaba – 2014, $21.8 billion

While you might have expected an American company to hold the first place, the title belongs to Alibaba. This internet giant wasn’t well-known in America before their IPO, but that all changed in 2014.

They decided to list their American depositary shares on the NYSE, with a $68 offering price. The market value of the largest e-commerce company in China was $168 billion – three times more than eBay’s.

During the first day, their stock surged 38%, making its founder, Jack Ma, the wealthiest man in China.

Visa – 2008, $17.9 billion

 

Although March of 2008 wasn’t the best time to go public, credit card company Visa raised almost $17.9 billion. In contrast, Mastercard raised seven times less when they went public in 2006.

In addition, they used a part of the proceeds to redeem shares owned by a consortium of banks which also held Visa.

Enel Spa – 1999, $16.5 billion

 

Apart from Alibaba, another foreign company appears on our top five list. In 1999, power company Enel appeared on both the Italian Stock Exchange in Milan and the NYSE. They became the third most significant IPO in the United States. Furthermore, the most interesting thing about them was the fact that they were also a government-owned business.

The Italian government needed to pay a debt, so they decided to sell a third of the company. However, by 2007, the company was removed from the New York Stock Exchange due to low trading volume.

Facebook – 2012, $16 billion

Even though it had issues from the start, Facebook was one of the most anticipated IPOs of all time. After its founding in 2004, Mark Zuckerberg’s social network amassed more than 800 million users by 2012.

This company also defined the social era of the Web, as said by New York Times. Furthermore, their initial offering was $38, and their market value was $104 billion – more than Amazon and McDonald’s.

However, due to some problems with the Nasdaq stock exchange, some of their underwriters had to prevent the stock from falling below those $38. Because of that, they had to buy some shares.

General Motors – 2010, $15.8 billion

 

Before General Motors added themselves to the list of the most successful IPOs, they went through bankruptcy.

After a year and a half of problems, they emerged on the NYSE in 2010. Their CEO, Dan Akerson, rang the opening bell, and everyone could hear the revving engine of a Chevrolet Camaro.

However, the biggest seller in this IPO was the government of the United States. Back when the financial crisis happened, General Motors had to take a $50 billion bailout in order to stay active. Therefore, the IPO was a step made by the U.S government to compensate for their investment. The U.S. Treasury, however, sold their last shares by 2013.

Using Income Investing As a Stock-Picking Strategy

Steady income is what most investors are after. However, due to low yields in the recent years, it has been tricky to create significant returns. Some securities have a fixed income, like bonds and CDs. However, income investors are looking for more opportunities. Thankfully, there are many dividend-paying stocks they can choose from.

Which companies pay dividends?

There are young companies that are looking to grow, and older, already established ones. However, only some of them may pay dividends if they want to.

There are three options they can choose from: pay dividends to their shareholders, reinvest the profit, or do both things at the same time. Younger companies tend to stay away from dividends because they want rapid growth.

In addition, even bigger, older companies also avoid dividends – Berkshire Hathaway, for example. Typically, companies that pay dividends are usually the ones that have stopped growing, having already left the rapidly advancing industries.

What is a dividend yield?

A dividend yield is the amount of the yearly dividend which shareholders can expect. The higher it is, the better the income. However, if the income is over 20%, it might be too risky to pursue.

For example, if ABC trades their stocks at $50 per share, they could also have an annual dividend of $5 per share. Therefore, their dividend yield would be 10%. But, if they trade the shares at a higher price, the dividend yield would be smaller.

In the real world, you can expect a dividend yield of about 2% to 5%, and it usually depends on the sector you are looking at. Many income investors try to find those that have higher yields, but they have to be careful. The dividend yield has to give them a steady income over many years to come.

 

Johnson & Johnson

A fantastic example of a company that paid dividends regularly is Johnson & Johnson. From 1963 up to 2004, they increased the yield every year. If you had bought a stock in 1963, that would mean the dividend yield would have grown at least 12% every year.

After 30 years, you would have a 48% annual return for those same shares you bought in 1963.

However, if you want such results, you would have to do some proper research. Finding a good income investing stock is not for the faint-hearted. Before you decide on one, try using a stock screener to find out which company has the highest dividend yield. After that, you could use fundamental analysis for further research.

Don’t rely solely on dividends

Just like other strategies, this one also doesn’t have a “one size fits all” formula. Finding a fantastic company that gives high dividends is not easy – and it can also be risky.

Just because the dividend yield is high, it doesn’t mean that it is a good company. After all, those dividends are coming from the company’s income. Furthermore, sometimes it is better to reinvest and enhance the growth than pay out high dividends.

In addition, you cannot rely just on a stock scanner for this purpose. You would need to have proper knowledge about income investing so that you could reach the right decision. Apart from that, your personal judgment plays a part too.

Dividends can also be risky

If you thought that this would be easier and that you could lower the risk, but still make an income – think again. Any risk that we can connect to equity security is the same as the one we can apply to high dividend yields. However, you can avoid problems by picking solid, established companies.

You cannot avoid taxes

Another important thing to remember is that, in most countries, dividends are taxed just like your wages. In addition to that, you would have to pay a higher tax bill for them than for capital gains. Therefore, this might actually lower your return significantly.