subject: Dividends - Investing Tips For Good Dividends [print this page] Many people want to play on the stock market in hopes of making the magical selection that will provide them with lots of disposable income and make all their dreams come true. Although it might seem like the stock market is a place where you get thousands of dollars in return for a small investment, there are actually a lot of very complex processes and equations that go into determining who makes money, and who does not. More often than not, naive investors will sink all their money into one prospect only to have it shudder and die within a few months. Not all investing is created equal, and if you want the best dividends, you need to understand how the process works and what to look out for.
The first thing to understand is exactly what dividends are. When a company goes public and starts to trade its stock on the big boards, they begin to take on public shareholders. These shareholders can be investment firms, banks, or normal people that are interested in gaining something back on their money. In a certain sense, these people become partial owners of the company, and when the company does well, it usually rewards them for their initial investment. When a successful company turns a profit, it has the option of distributing percentages of these profits to its shareholders, and when it does, these shared profits are known as dividends.
Many people think that dividends are the fastest way to see a return on your investment without really having to do anything, but it's important to remember that there are many different ways in which the market and the price of the stock can affect the dividend you do, or do not see. When thinking about getting involved in this type of investing, you must take care to consider the payout ratio very carefully. Many companies will try to attract investors with ratios that sound too good to be true, and they usually are. Anything over sixty five percent is a ratio that you should probably stay away from.
In the first couple of years, it's important to remember that the best thing you can do with your dividends is reinvest them. Unless something unusual happens, they probably won't be huge amounts of profit for you anyway, and you can strengthen your portfolio consistently if you allow those dividends to continue working for you in the open market.
by: Troy Truman
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