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Stock Tickers & Dividends

Personal Finance Clinic
Today’s post comes courtesy of a question from The Personal Finance Clinic held by the moneygardener, Canadian Capitalist and Triaging My Way To Financial Success.

Mark writes,

I would like to see a lesson that explains how to use a basic stock ticker. For example, a step by step breakdown of what each of these terms and numbers mean (http://www.google.com/finance?q=ge).
I would like a simple lesson on how dividends work and how to search for funds/stocks based on dividends
.”

Stock Tickers:

For a new investor looking at a finance website that displays stock information can be very overwhelming. For this exercise I’ll explain the information displayed within the red box of this image I’ve taken from Google Finance for GE on June 11th before the markets opened.

General Electric Company trades on the NYSE under the symbol “GE” or what is known as its “ticker”.

The price, $13.40, is the previous day’s close and beneath for most large US companies you’ll see a “pre-market” price that indicates where the stock intends to trade at the market open based on company information and investor activity during inactive periods of the market.

“Open” indicates the first price a share is traded at when the markets open on any given day. If GE announced an increase in profit of 50% this number might jump considerably above the previous day’s close or move in a negative direction for bad news.
“High” indicates the highest price a group of GE shares has been bought and sold at during the current market day.

“Low” indicates the lowest price a group of GE shares has been bought and sold at during the current market day.

“Volume” indicates the total number of shares that have changed hands (either bought or sold) from the market open. For Google Finance this number is displayed as million/day.

“Mkt Cap” stands for market capitalization and is the total value of all publicly traded common shares of the company. To achieve this number you take the total number of outstanding shares (10.59B) and multiply it by the market price ($13.40) to get $141.90B.

“52Wk High” & “52Wk Low” indicate the highest and lowest prices the shares have achieved in any 52 week period (1 year).

“Avg Vol” indicates the average volume (number of shares bought or sold) on any given day. If the volume for June 11th was 500.0M versus the average volume of 93.35M there may be a reason for the increased activity in buying and selling of shares (either good or bad).

“P/E” indicates the price to earnings ratio of the company based on trailing earnings for the past four quarters (1 year). You get this number by dividing the price ($13.40) by earnings per share (EPS: $1.62) to get 8.29.

“F P/E” indicates the forward price to earnings ratio of the company based on anticipated earnings of the company in the future.

“Beta” indicates the beta co-efficient of the shares and demonstrates how correlated the company is to the overall stock market. The market, in general, has a beta of 1.0 and individual stocks will have numbers above or below 1.0. Higher beta stocks (in either direction) tend to have more price volatility (higher degrees of price movements) than the overall market. If the market moves 3% in any direction an investor can expect GE shares to move 4.86% in that same direction.

“EPS” indicates the earnings per share (profit per share) that the company has achieved in the past four quarters (1 year). This number can fluctuate considerably depending on the volatility in quarterly earnings a company experiences.

“Dividend” indicates the yearly dividend (to determine quarterly divide by four) that the company pays out to investors holding common shares.

“Yield” indicates what percentage of the current price ($13.40) is paid to an investor as a dividend.

“Shares” indicates the total number of outstanding shares held by all investors (institutional, individual, etc).

Dividends:

Dividends are payments made by any company (public or private) to shareholders of common or preferred stock. A dividend is essentially an incentive for a company to retain investors by returning a portion of profits back to investors. Profit can be used to re-invest back into a business but many investors look to dividends as an essential component of investing as cash returned to an investor is tangible and companies realize that paying investors for the use of their capital helps to support a strong capital base for operations.

Some governments, such as Canada, offer tax incentives (dividend tax credit) that tax dividends at rates below income taxes providing a further incentive for investors to receive dividends.

Screening for dividends can be done easily in a few ways. For US based stocks Google offers a stock screener that an investor can use to track down companies based solely on their dividend yield. If I wanted to set a threshold (absolute minimum yield) at 3% I can set the screen to a minimum 3% and look at the 759 companies that pay a dividend of 3% or more on all exchanges or specifics such as the NYSE, NASDAQ or AMEX.

For Canadian based stocks globeinvestor offers a stock screener that works essentially the same. You enter the information on yield that you’re searching for and filter through the stocks selected for other criteria.

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