What are dividends in stocks

what are dividends in stocks

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Opinions about the best stocks to invest in have been printed in newspapers since the New York Stock Exchange began reporting ending daily stock prices, but cable television and the Internet have created instant access for investors. Today most brokerage companies publish a recommended portfolio divided into common categories (usually industries or asset class). The categories are weighted according the analysts' recommended asset allocation. The portfolio is adjusted as the market shifts and forecast opinions about individual stocks change.


To select the top five stocks, investors should consider their investment objective, risk tolerance, current portfolio asset allocation and amount of money available for investment. Owning the top five stocks in the same portfolio would include a diverse asset allocation. The amount invested in each stock would be adjusted to meet the needs of the individual.


Online stock screeners allow investors to select criteria to find matching stock picks. The top five stocks to invest in should have the highest amount of the following characteristics:

Aggressive growth: Look for stocks in new or rapidly expanding industries. Stocks in this category are considered risky and volatile. They have the potential for large swings in price (both up and down). The five-year earnings growth rate would be at least 30 percent.

Growth: These stocks are in an industry projected to experience continued growth. Profits are reinvested in the company, so they may not pay dividends. The price to earnings ratio shows a steady upward trend. The five-year earnings growth rate would be 20 percent.

Growth and Income: Larger companies pay dividends and have increasing price appreciation. They are

usually industry leaders with enough market share to redirect some profits back to stockholders. Return on equity should be at least 10 percent with a dividend yield of at least .5 percent

Income: The stock has a history of paying high dividends, preferably increasing in amount. Income stocks are typically those issued by larger organizations in mature industries. The dividend yield should be at least four percent.

Foreign stocks: Investing in companies outside the United States allows you to take advantage of markets that may be rising as U.S. markets are fallling. Look for American Depository Receipts (ADRs) in growing world markets. ADRs can be found in all of the other stock categories. They may be considered more risky than domestic companies because of the added risk of currency exchange rates, foreign government involvement, and lax financial reporting.


There is no one stock category that performs better than all others over time. Ibbotson Associates, an asset allocation specialist, has tracked the performance of investments for decades and shows clearly that any one category can rise one year and fall the next. A diversified portfolio has been shown to perform better than attempts to guess the top leader and invest solely in it.


The top five stocks to invest in should have a history of increasing PE ratios, Increasing revenue, a risk level in line with the investor's tolerance level and projections of continued positive returns.


Some investors use "timing" to select stocks based on whether they believe the price will move up or down. Charting stock prices or total returns to interpret the next stock move involves careful daily analysis.

Source: ehow.com

Category: Forex

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