Monday, July 12, 2010

Dividend play

Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much but the dividend attempts to make up for this.

High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

Risk adverse investor should scout for high dividend payout stocks and BUY them when stock market corrects heavily. Stocks paying significant dividends have less downside risk than other stocks as long as their dividend isn't threatened. Of course, the biggest advantage of buying these dividend stocks is that you get paid just to hold them. Stocks with solid dividend prospects don't go down as much as other stocks, because when they start falling, the resulting rise in dividend yield attracts more value buyers from fund managers and sharp investors. Dividend yield is the estimated dividend payouts over the next 12 months divided by the price you pay for the shares.

Dividends are normally quoted in terms of dollar amount of each shares. For example, if a company share price is $100 and a dividend of $6 per share is paid, the result is a 6% dividend yield. If the share price drop to $80 and dividends remains at $6, the result is a 7.5% dividend yield.

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