Investing All-in-One For Dummies. Eric Tyson

Скачать книгу

name (or symbol depending on the source). Stock symbols are the language of stock investing, and you need to use them in all stock communications, from getting a stock quote at your broker’s office to buying stock over the internet.

      Dividend

      Dividends (shown under the “Div” column in Table 1-1) are basically payments to owners (stockholders). If a company pays a dividend, it’s shown in the dividend column. The amount you see is the annual dividend quoted for one share of that stock. If you look at LowDownInc (LDI) in Table 1-1, you can see that you get $2.35 as an annual dividend for each share of stock that you own. Companies usually pay the dividend in quarterly amounts. If you own 100 shares of LDI, the company pays you a quarterly dividend of $58.75 ($235 total per year). A healthy company strives to maintain or upgrade the dividend for stockholders from year to year. (Additional dividend details are discussed later in this chapter.)

      The dividend is very important to investors seeking income from their stock investments. For more about investing for income, see Chapter 3 in Book 3. Investors buy stocks in companies that don’t pay dividends primarily for growth. For more information on growth stocks, see Chapter 2 in Book 3.

      Volume

Normally, when you hear the word “volume” on the news, it refers to how much stock is bought and sold for the entire market: “Well, stocks were very active today. Trading volume at the New York Stock Exchange hit 2 billion shares.” Volume is certainly important to watch because the stocks that you’re investing in are somewhere in that activity. For the “Vol” column in Table 1-1, though, the volume refers to the individual stock.

      Volume tells you how many shares of that particular stock were traded that day. If only 100 shares are traded in a day, then the trading volume is 100. SHC had 3,143 shares change hands on the trading day represented in Table 1-1. Is that good or bad? Neither, really. Usually the business news media mention volume for a particular stock only when it’s unusually large. If a stock normally has volume in the 5,000 to 10,000 range and all of a sudden has a trading volume of 87,000, then it’s time to sit up and take notice.

      

Keep in mind that a low trading volume for one stock may be a high trading volume for another stock. You can’t necessarily compare one stock’s volume against that of any other company. The large-cap stocks like IBM or Microsoft typically have trading volumes in the millions of shares almost every day, whereas less active, smaller stocks may have average trading volumes in far, far smaller numbers.

      The main point to remember is that trading volume that is far in excess of that stock’s normal range is a sign that something is going on with that company. It may be negative or positive, but something newsworthy is happening with that company. If the news is positive, the increased volume is a result of more people buying the stock. If the news is negative, the increased volume is probably a result of more people selling the stock. What are typical events that cause increased trading volume? Some positive reasons include the following:

       Good earnings reports: The company announces good (or better-than-expected) earnings.

       A new business deal: The firm announces a favorable business deal, such as a joint venture, or lands a big client.

       A new product or service: The company’s research and development department creates a potentially profitable new product.

       Indirect benefits: The business may benefit from a new development in the economy or from a new law passed by Congress.

      

Some negative reasons for an unusually large fluctuation in trading volume for a particular stock include the following:

       Bad earnings reports: Profit is the lifeblood of a company. When its profits fall or disappear, you see more volume.

       Governmental problems: The stock is being targeted by government action, such as a lawsuit or a Securities and Exchange Commission (SEC) probe.

       Liability issues: The media report that the company has a defective product or similar problem.

       Financial problems: Independent analysts report that the company’s financial health is deteriorating.

      

Check out what’s happening when you hear about heavier-than-usual volume (especially if you already own the stock).

      Yield

      In general, yield is a return on the money you invest. However, in the stock tables, yield (“Yld” in Table 1-1) is a reference to what percentage that particular dividend is of the stock price. Yield is most important to income investors. It’s calculated by dividing the annual dividend by the current stock price. In Table 1-1, you can see that the yield du jour of ValueNowInc (VNI) is 4.5 percent (a dividend of $1 divided by the company’s stock price of $22). Notice that many companies report no yield; because they have no dividends, their yield is zero.

      

Keep in mind that the yield reported on the financial sites changes daily as the stock price changes. Yield is always reported as if you’re buying the stock that day. If you buy VNI on the day represented in Table 1-1, your yield is 4.5 percent. But what if VNI’s stock price rises to $30 the following day? Investors who buy stock at $30 per share obtain a yield of just 3.3 percent (the dividend of $1 divided by the new stock price, $30). Of course, because you bought the stock at $22, you essentially locked in the prior yield of 4.5 percent. Lucky you. Pat yourself on the back.

      P/E

      

The P/E ratio is the relationship between the price of a stock and the company’s earnings. P/E ratios are widely followed and are important barometers of value in the world of stock investing. The P/E ratio (also called the earnings multiple or just multiple) is frequently used to determine whether a stock is expensive (a good value). Value investors find P/E ratios to be essential to analyzing a stock as a potential investment. As a general rule, the P/E should be 10 to 20 for large-cap or income stocks. For growth stocks, a P/E no greater than 30 to 40 is preferable. (See Chapter 4 in Book 3 for full details on P/E ratios.)

In the P/E ratios reported in stock tables, price refers to the cost of a single share of stock. Earnings refers to the company’s reported earnings per share as of the most recent four quarters. The P/E ratio is the price divided by the earnings. In

Скачать книгу