DIVIDENDS The Stock Market Game. How do stock market investors make money? By selling stocks for profit By selling stocks for profit Through dividends.

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Presentation transcript:

DIVIDENDS The Stock Market Game

How do stock market investors make money? By selling stocks for profit By selling stocks for profit Through dividends Through dividends

DIVIDENDS A set dollar amount distributed to every shareholder of record on a certain date. A set dollar amount distributed to every shareholder of record on a certain date. A dividend is allocated per share, so the more shares an investor owns, the larger the dividend payment he/she receives. A dividend is allocated per share, so the more shares an investor owns, the larger the dividend payment he/she receives. The annual dividend is distributed to shareholders quarterly. For example, if you own 100 shares of XYZ Company and the company declares a $2 annual dividend, you will receive $50 each quarter that you own the stock during that year. The annual dividend is distributed to shareholders quarterly. For example, if you own 100 shares of XYZ Company and the company declares a $2 annual dividend, you will receive $50 each quarter that you own the stock during that year. When would an investor choose a stock dividend?

Terms to Know Dividends: Part of a company’s profits (earnings) paid to stockholders in or additional shares. Dividends: Part of a company’s profits (earnings) paid to stockholders in or additional shares. Distribution date: Date on which the dividend payment is made. Distribution date: Date on which the dividend payment is made. Profit: What remains after subtracting a company’s expenses from its revenue. Profit is a company’s reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay. Profit: What remains after subtracting a company’s expenses from its revenue. Profit is a company’s reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay. P/E Ratio: A company’s closing price divided by its latest annual earnings per share. If calculated with last year’s earnings, it is called the Trailing P/E ratio. If calculated with a forecast of next year’s earnings, it is called the Forward or Projected P/E ratio. P/E Ratio: A company’s closing price divided by its latest annual earnings per share. If calculated with last year’s earnings, it is called the Trailing P/E ratio. If calculated with a forecast of next year’s earnings, it is called the Forward or Projected P/E ratio. Record Date: A date set by the company on which an individual must own shares to be eligible for dividends. Record Date: A date set by the company on which an individual must own shares to be eligible for dividends. Stock split: Replacing each share of stock with a larger number of lower-priced shares but keeping the total value of one’s investment unchanged. Stock split: Replacing each share of stock with a larger number of lower-priced shares but keeping the total value of one’s investment unchanged. Yield: The rate of return on an investment paid in dividends or interest and expressed as a percent. Yield: The rate of return on an investment paid in dividends or interest and expressed as a percent.

When a company is doing well, it can do a variety of things with its profits: Reinvest the earnings and use the funds for expansion. Reinvest the earnings and use the funds for expansion. Develop new products. Develop new products. Give a percentage of the profits to shareholders through dividends. Give a percentage of the profits to shareholders through dividends. The company’s board of directors decides whether to reinvest the profits or pay dividends to their shareholders or both.

When a company is not doing well, it may still pay a dividend. Why? They do not want to scare off investors by having them think that the company is not doing well. They do not want to scare off investors by having them think that the company is not doing well. They may not want to break a long corporate history of declaring dividends. They may not want to break a long corporate history of declaring dividends. Companies like Coca Cola, Procter & Gamble, General Electric, Pfizer, Inc, Eli Lilly and Bank of America have paid yearly dividends over 100 years. Companies like Coca Cola, Procter & Gamble, General Electric, Pfizer, Inc, Eli Lilly and Bank of America have paid yearly dividends over 100 years. Over fifty percent of the Standard & Poor’s list of 500 leading companies declares a dividend.