Dividends Important Part of Stock Investor"s Return
Investing in the stock market means accepting the risk you will lose money along with the possibility you will make money. Investors seek means to boost the possibility of making money.
One of the ways you can improve your return is to buy stocks that pay a decent and consistent dividend. Dividends are a way companies return some of their profits to the owners (stockholders).
Not all companies pay dividends.
Most companies that do pay consistent dividends are larger and more mature. Younger and smaller companies may not generate enough (or any) profits to pay dividends.
Dividends generate current income and bolster your return. In many cases, dividends are paid on a quarterly basis, although that is not a requirement. You will usually receive your dividend in cash, but the company can also issue stock or other compensation such as store script for retailers. Some companies allow you to reinvest dividends to buy more shares of stock.
Dividends provide investors with a steady return and their ratios can also tell you much about a stock.
Like many facets of investing, there are calculations using dividends that help you decide if a stock is a good candidate. There are a number of Websites that can provide the calculations for you on dividends and dividend ratios. One that I like is Rueters.com.
Click on its investing link (you need to sign up for the free registration) and enter a stock symbol.
The site presents you with a wealth of information.
One of the more important calculations is to find the dividend yield. You calculate the dividend yield by dividing the annual dividend per share by the stock price.
The dividend yield tells you how much in the way of profits is being returned based on the stock price. Older and larger companies tend (but not always) to pay out a higher percentage of their profits than smaller and younger companies do.
You'll notice that the next column is Industry. Reuters groups every company with similar companies that operate in much the same manner. This comparison is important because it tells you how the company rates compared to its peers.
The following column is Sector. Here, Reuters groups all companies into one of 12 sectors. Others group into 11 sectors, but the concept is the same.
The final column is S&P 500, which is used as a target for the whole market.
The next two ratios that are important to research, Dividend Yield – 5-Year Ave. and Dividend 5 Year Growth Rate, look at how the stock has performed in the past.
Typically, higher yield means lower growth rate. Utilities and real estate are sectors that often pay high current yields but don't often grow rapidly.
Using historical data tells you how consistently the company has paid out dividends and at what rate.
The final item is the Dividend Payout Ratio. It is calculated by dividing the dividends per share by the earnings per share.
This ratio can serve as a red flag if it differs wildly from the industry or sector numbers. Changes in earnings due to sales of assets or other one-time events can throw this calculation off.
These dividend ratios don't tell the whole story, but they will give you some important information. Anytime you can look at historical averages compared to industry and sector norms, that is valuable information.
One of the ways you can improve your return is to buy stocks that pay a decent and consistent dividend. Dividends are a way companies return some of their profits to the owners (stockholders).
Not all companies pay dividends.
Most companies that do pay consistent dividends are larger and more mature. Younger and smaller companies may not generate enough (or any) profits to pay dividends.
Dividends generate current income and bolster your return. In many cases, dividends are paid on a quarterly basis, although that is not a requirement. You will usually receive your dividend in cash, but the company can also issue stock or other compensation such as store script for retailers. Some companies allow you to reinvest dividends to buy more shares of stock.
Dividends provide investors with a steady return and their ratios can also tell you much about a stock.
Like many facets of investing, there are calculations using dividends that help you decide if a stock is a good candidate. There are a number of Websites that can provide the calculations for you on dividends and dividend ratios. One that I like is Rueters.com.
Click on its investing link (you need to sign up for the free registration) and enter a stock symbol.
The site presents you with a wealth of information.
One of the more important calculations is to find the dividend yield. You calculate the dividend yield by dividing the annual dividend per share by the stock price.
The dividend yield tells you how much in the way of profits is being returned based on the stock price. Older and larger companies tend (but not always) to pay out a higher percentage of their profits than smaller and younger companies do.
You'll notice that the next column is Industry. Reuters groups every company with similar companies that operate in much the same manner. This comparison is important because it tells you how the company rates compared to its peers.
The following column is Sector. Here, Reuters groups all companies into one of 12 sectors. Others group into 11 sectors, but the concept is the same.
The final column is S&P 500, which is used as a target for the whole market.
The next two ratios that are important to research, Dividend Yield – 5-Year Ave. and Dividend 5 Year Growth Rate, look at how the stock has performed in the past.
Typically, higher yield means lower growth rate. Utilities and real estate are sectors that often pay high current yields but don't often grow rapidly.
Using historical data tells you how consistently the company has paid out dividends and at what rate.
The final item is the Dividend Payout Ratio. It is calculated by dividing the dividends per share by the earnings per share.
This ratio can serve as a red flag if it differs wildly from the industry or sector numbers. Changes in earnings due to sales of assets or other one-time events can throw this calculation off.
These dividend ratios don't tell the whole story, but they will give you some important information. Anytime you can look at historical averages compared to industry and sector norms, that is valuable information.
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