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per share per quarter) and let’s say a current price of $50 per share, its
yield would work out to be:
2 / 50 x 100% = 4%
This is not a bad return, given that many savings accounts barely
surpass 3% interest rates. But remember that with savings account your
money is FDIC insured. Of course, the yield amount changes as the
stock prices moves daily, so sometimes the average stock price over a
period of time (e.g., a month) is used to arrive at the average yield.
Many investors use dividends as a criteria to invest in a stock. For
example, as prices of many tobacco companies (e.g., RJ Reynolds, Philip
Morris) have come under pressure due to various smoking lawsuits,
their dividend yields (which move in the opposite direction of the stock
prices) have gone up. This has created a buying opportunity for the
dividend players, who can earn a sizeable income from the dividends of
such stocks. Bear in mind, however, that a company may at any time
change its dividend policy, although some avoid lowering it as it is bad
publicity. As mentioned before, in today’s market dividends have lost a
great deal of significance. Nowadays many people do not even bother
checking for dividend payments when they invest in stocks. Their
criteria for investment returns is the potential stock price appreciation.
Another type of dividend is stock dividend. Companies practicing
this form of dividend payout distribute a fraction of a share for each
share owned by the shareholders on record prior to or on the record
date. For example, a 10% stock dividend means that the shareholders
would receive 1 extra share of the stock for every 10 shares they own
prior to the record date. The day after the record date, the stock prices
are adjusted down based on the dividend amount (share prices are
reduced by %9.09) so the market value of the investors’ shares remains …
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