Feb 12, 2009
Stocks and Dividends
When examining stocks, we are all too quick to focus on the price itself, and overlook the underlying value of the stock, which presents itself to the equity holder in terms of dividends. For this example, let’s examine two stocks: Google (GOOG) and Microsoft (MSFT
).
At the time of this writing, we find that Microsoft offers a dividend of 0.13, generally every quarter. Put another way, this means that for every 1000 shares you own in the company, you would receive 130 dollars in distributions. You can then take this money and use it as additional income, or reinvest the dividends back into the company to buy additional shares.
Google on the other hand, offers no dividends. It’s value is entirely reflected in the price of the stock itself — if the price of the stock goes up and you sell it, you make money. On the other hand, if the price of the stock drops, you may lose significant value. But until you actually sell the stock, you can’t realize the value.
In my opinion, stock in a company isn’t worth holding unless there exists some way for shareholders to share in the company’s profits. As a long-term strategy, always buy stocks that pay dividends.