Student Investment Guide Part V: The Magic of Dividend

     

Knowlton Thomas

What is a dividend?

A dividend is a sum of money paid
out periodically (quarterly most often)
by a company to its shareholders.

The dividend money comes from

the company’s profits. Paying out
dividends is a lure for potential
investors and an incentive for existing
investors to stay on board. It’s evidence
(in most cases) that a company is
financially stable and confident in its
future fiscal prospects. How much

a company distributes through its
dividend is determined by its “dividend
yield.”

What is a dividend yield?

A dividend yield, sometimes
referred to as a dividend-price ratio, is
determined by one of two calculations:
The company’s net annual dividend
payments divided by its market cap,
or the company’s dividend per share
divided by the company’s price per
share. But forget that mumbo jumbo.
All you need to know is that a dividend
yield is expressed as a percentage,
typically two to five percent, and

higher is (usually) better.

How can dividends benefit my financial
strategy?

For all the complexities of today’s
financial world, it’s remarkable
how overlooked and understated
the simplest, most basic rules can
be—and ironic that these rules tend to
outperform the over-analyzing “expert”
strategies year after year.

Newbie investors often adopt the
notion that the investment strategies
too complicated to understand must
be the best— because if the obvious
ones worked so well, why wouldn’t
the gurus recommend them? Fact is,
the gurus don’t want you to realize
that simplicity equals success, because
you’d then also realize that you don’t
need a financial advisor to post strong
returns, and “wealth management”
firms would be out of business.

One way to prosper financially
without an advisor is through dividend
investing, which is where you focus a
significant portion of your investment
money into dividend-paying stocks.
Where it once was expensive to
conduct a trade on the stock exchange,
and required calling stock brokers who
rolled dice to determine the “best”
stocks to suggest, anyone can now set
up an account with a discount e-broker

like Questrade.com to buy and sell
stocks for as little as $5 per transaction.
Armed with a discount e-broker
and the power of simplicity, you
can skip spending hours researching
company’s financial statements and
growth strategies. Fact is, you can
match or beat stock exchange markets
without knowing anything about the
company — except its dividend yield.
Like any investment, dividend
stocks aren’t guaranteed returns. But
if you take a look at the Standard &
Poor’s 500, which tracks 500 U.S.
large-cap companies, and select any
batch of stocks that offer a dividend
yield between the top ten and 20
percent, your portfolio has a very
good chance for strong, long-term
performance, plus the bonus of
dividend cheques. The reason you
avoid the very highest dividend yields
is because those companies sometimes

   

over-compensate through dividends
to lure investors in— because they’ re
actually in financial turmoil and need
help.

Stocks scare me, dividends or no. Any
other options?

If trading on a stock exchange
unsettles you, there are a variety
of dividend-based mutual funds
offered by many established financial
institutions.

As far as mutual funds go,
dividend funds are historically stable,
and the dividend distributions are
automatically re-invested into the fund,
allowing you to purchase more units
without upping your personal financial
contributions. They also tend to have
low fees in comparison to other mutual
funds, and have the potential for high
returns in a strong future economy
(such as we are poised for now).

 

Don’t ever forget

By Matthew Visser

ovember 11, 2010 marked the
N= year that the world came

together and fought ending
the First World War, the Great War.
I stood on the grounds of city hall in
Port Coquitlam with my friends and a
hundred other people, quiet and still, as
we all showed our respects to the men
and women who died for our freedom
in not just one World War but two,
and many more battles throughout the
decades.

Before the grounds of city hall

_ became packed with people of young
and old, I went early and watched as
veterans came dressed in their uniforms
and sat down in their seats facing the
cenotaph. I watched people come and
stand on the outside grounds for the
ceremony to commence. I watched as
parents brought their young children
and showed them the names on the
cenotaph. I watched these people and

began to feel a sort of warmth grow
within me as I witnessed something
majestic.

Majestic because even though
the young children who were at the
ceremony do not fully understand the
extent of why we pay our respects on
Remembrance Day. But because of the
emotions that could be seen on a five
year olds face when a father gets to tell
his child that these men, with names on
the cenotaph, died so that he could have
what he has today; his toys, his friends,
and both his mommy and daddy.

I walked around the cenotaph
before the bag pipes began to play
looking at the names of the men who
sacrificed their lives for the freedom of
their country and for the people of their
country. They sacrificed their lives for
me and my friends and so I could have
what I have today, my mom and dad. I
touched those names that are carved in
the cenotaph and felt sad for these men
who died for me and for the person who

is reading this story. And so from my
sadness I stood with the crowd for those
two minutes and looked at the veterans
who fought and survived and now sat
before me quiet and with a face that
looked tired but proud. I can only think
they are proud because of all the people
who were around them and quietly
saying their thanks for what they were
ready to sacrifice.

But yet I cannot think how two
minutes is not long enough to say how
every person, young and old, feels
towards these veterans that sat before
me and the ones who have died. I think
about them as J am writing this article.
I feel that everyone should have the
chance to speak to a veteran and spend
time with them, and listen to how it was
for them in the war, whichever one was
theirs. People have an understanding
of what-war is from watching it on a
screen or reading it in a book. But to
actually see tears fall from a veteran’s
eyes as he tells you what he had to do

in war and what he lost is the only way |
that a person is going to understand
what war is and what it does to a
person.

I stood among the people who, just
like me, know the importance to say
thank you to those people who died for
them. But they did not die in vain. They
died in a hope that the world would be
a place of peace and where every man
would be declared equal. They died
so that the people after them would
be able to fix the world’s wrongs and
so that there would never be another
world war. They died so that I myself
would be able to have the freedom that
every person on this Earth has the right
to have. They died so that I would not
have to die like they did, for the future
of my country.

I stood on November 11 and
looked at the names on the cenotaph
and hoped that my name would never
have to be on it. I stood with respect for
those men and with hope.

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