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I am extremely excited to announce my new e-book, SOLID STOCK SELECTION is now available !! Click here to find out more.
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June 18, 2006 Dividends Dividends are the payback you receive for owning stock in a company. In the simplest terms the company divides up the earnings by the number of shares and the stock holders get return on their investment. This generally would happen quarterly or annually depending on the company's policy. In the real world this is also impacted by a few other things. A company may need to spend money updating equipment, buying property to expand, or any other number of things. It may also want to hold on to some of the cash for future projects. All of those types of needs/wants impact the amount to be divided among the stock holders. For an example, if a company makes two million dollars in profits and there are two million shares, each share might get one dollar. If the company decides to upgrade their computer system and that costs one million, then each share would only get fifty cents. More likely the company would also want to keep some of that cash on hand, say maybe five hundred thousand, so each share would get twenty five cents. This might still seem like a good return, but it really depends on the price paid for each share. If you paid one dollar and the dividend is twenty five cents; that is a 25% return on your investment. Everyone wants returns like that, so that could drive the price per share up. If the price would rise to two dollars that would still be a 12.5% return. Still good. If the price would be driven to $10 per share suddenly the 25 cents is only 2.5%. Better than most savings accounts, but nothing spectacular. Many companies have a pretty stable price per share, and people buy the stock for the dividend. Other companies have low or no dividends and people invest hoping the share price will rise. Companies with a P/E ratio (Price /Earnings) obviously have earnings (or at least expect to have earnings.) That ratio can be interpreted as the projected percentage of return on your investment. One thing I haven’t touched on is the concept of preferred shares and common shares. I will explain that next week. Thanks and good investing to all, Rob
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Want a scholarship into the Millionaire Mind Intensive worth $2590? http://www.secretsofthemillionairemind.com The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy copyright Robert E. Britt 2006 |
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