capital appreciation - investing in stocks
capital appreciation in stocks use calculators Appreciation happens when market prices of a certain asset go up which in turn raises the value of assets that an investor owns. There are only two ways an investor can make money off an asset, capital appreciation, or dividend income. One of the best things that can happen to an investor is actually having both happen to you on the same stock or investment purchase because it means more money. If you buy a stock that pays a 5% dividend and the price of that stock also goes up to say 100 dollars from 50, not only have you doubled your money but if it took a year to get to 100 dollars you also made an additional 5% on the investment from dividends as a bonus so to speak. It is always important to make sure that the stocks you buy give shareholders cash, but also be certain that they aren’t giving ALL their money away to shareholders because it’s a waste of the companies’ money when they could be investing in growth and giving the shareholders capital appreciation. There have been many stocks out there that have actually died because they paid too much money to shareholders and didn’t keep enough when the times got bad. A company in my opinion should RARELY pay more than 2/3rds of the earnings per share as a dividend. If the company isn’t keeping at least one third of the earnings per share, it is a sign that they aren’t paying attention to how they can grow as a company. Remember that some companies don’t pay enough of a dividend out because they are too focused on investing money rather then giving cash to their shareholders. Many times paying a dividend will not only give you a return but it’s also a sign that the company is a strong company. It has been shown that companies that can pay a dividend especially is smaller capital companies that have recently come onto the stock exchange are usually stronger companies and will grow larger in the future over companies that can’t afford to pay a dividend. So remember capital appreciation is very important but it’s also important to note that companies SHOULD be able to pay something as a dividend to its owners as it’s a sign of strength and the stock is more likely to actually go up in value as well in the future. |