Stocks have proven that they offer longer-term appreciation than bonds. And for that to be true, there are many factors at play. There are several aspects you as an investor need to consider. Here are some of them.
Dividends can serve as a big boost to your earnings. It’s one method for companies that are publicly traded to offer some rewards or payments from their profits directly to the holders of the stock.
It’s usually the company’s board who decides the how often and how much the dividends will come. On the other hand, it’s mainly the company’s financial performance that drives dividend payments.
And dividends aren’t only in the form of cash. Companies sometimes pay dividends in the form of additional shares.
Investing in stocks that pay dividends is often a good idea. First, it’s a great boost to your earnings, as we have mentioned. Second, a company that offers dividend payments is usually a company that’s healthy.
The price/earnings ratio or p/e ratio is the ratio between the company’s current share price and its earnings per share.
You can easily spot the company’s p/e ratio on its financial reports, or websites that publish such data.
Higher p/e ratios mean that investors are willing to have over more money for the business’s future earnings. In effect, higher p/e ratios mean greater expectations for the company.
The beta is a numeric measurement that quantifies the volatility of a security in comparison to the market as a whole.
An asset with a beta of 1 usually exhibit volatility that’s the same as that of the market. If the beta is below 1, then the asset is theoretically less volatile than the broader market. If the beta is higher than 1, it means the asset is more volatile than the market.
Of course, volatility is a big deal for the investor. You can use the asset’s beta to know whether it’s well to own a certain stock. You can also use it to mitigate the negative effect of the market swings.
Earnings Per Share or EPS
The earnings per share refers to the portion of the company’s earnings after it pays taxes and preferred stock dividends and that are allocated to every share of the common stock.
You can use this figure to see how well the company can deliver some amount of value to the shareholder.
Higher EPS usually translates to higher share prices. The gauge is useful when you compare it to the company’s earnings forecasts.
It works like this: if the company often fails to the deliver on earnings forecasts, then you may have to think twice or thrice before you go buy that stock.
On the other hand, remember that the EPS, similar to many other financial metrics, can be manipulated. For instance, the company can buy some shares back. If it does that, the EPS figure will increase because the number of shares outstanding decreased.
It therefore pays to check the company’s buyback activity if you think that the EPS figure appears to bet too high.