Making Money on Stocks You Have

Article Written By: taamiv

Investors actually look forward for companies in the market that are sales and earning machines. Such companies have more potential so the investors are ready to put their money for the best earnings. The only reason you own a business is to get profit by owning stocks and is through capital appreciation and dividends.

It is the profit which an investor keeps after buying a stock and sells it at a high profit price .It is sometimes also called Capital Gains. Buy at lower price and sell at higher is common investment aphorism, but it is as legitimate to buy high and sell higher. If one has to express the same in percentage, the difference between your purchase price and your sell price is your return.

For example, if one buys a stock at $20 and latter sell for $40 your returns calculated is 100%. Sell it further for $80 and your return turns to be 2 %. In other ways, if one bought CISCO in 1990 at 10cents and sold it in 2000 at $70 your return was 69,900 percent.

You can share the company s profit in the form of stock dividend, as an owner of a company. On every quarter, company s earnings are reported and on the basis of those earnings it is decided to pay dividend or not. Dividend payout is decided on the basis of earnings on each declaration date and if a company sustains any loss it cut the dividend.

It is important for you to own a stock by the ex-dividend date in order to receive a dividend. Ex-dividend date is usually four business days before the company actually looks at the stockholders list. And the specific day on which company checks the list is known as record date.

If you have already owned the stock before the ex-dividend date, you will get a set amount of dividend by the company per share. If you own more than one share than company multiplies the number of shares you own by the dividend and mails you a check for the total amount of dividend. For instance, for 100 shares with dividend per share of $.35, you will get a dividend of amount $35.

Total return is defined as the money you earned by the stock s capital appreciation combined with the total amount of dividend you get. To make it simple, just add the rise in the stock price to the total received dividend and divide the result by the stock s purchase price.

To make things simpler lets take an example, suppose you bought 200 shares of IBM at $45 and sold them after two years at $110. The first year dividend paid by IBM was %1.00 and $1.40 the second year. The rise in stock price was $65; total dividend per share was $2.40. Adding both will give you $67.40. Divide this figure by the stock s purchase price of $45. The result is your total return, i.e. 1.5 or 150 percent of total return.

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You might also want to learn about Computing Earnings per Share (EPS).

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