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investment chapter 6.2 (viii. dividends (dividends and earning pershare…

- - - - Earnings are important to stock price
      - Earnings help determine dividend payouts
  - - - Indicates the rate of current income earned on the investment dollar
      - Convenient method to compare income return to other investment alternatives
  - - - Companies are not required to pay dividends
      - Some companies have high EPS, but reinvest all money back into company
  - - - Over 1,000 companies offer DRIPs
      - Usually have no brokerage fees
      - Uses dollar-cost averaging
- - - - Companies are leaders in their industries
      - Relatively lower risk due to financial stability of company
      - Popular with investing public looking for steady growth potential, perhaps dividend income
      - Provide shelter during unsettled markets
      - Examples: AT&T, Chevron, Johnson & Johnson, McDonald’s, Pfizer
  - - - Good for investors looking for relatively safe and high level of current income
      - Dividends tend to increase over time (unlike interest payments on bonds)
      - Some companies pay high dividends because they offer limited growth potential
      - More subject to interest rate risk
      - Examples: Duke Energy, Conagra Foods, General Mills, Altria Group
  - - - Have sustained rate of growth in earnings above general market
      - Investors expect higher price appreciation due to increasing earnings
      - Riskier investment because price may fall if earnings growth cannot be maintained
      - May include blue chip stocks as well as speculative stocks
      - Typically pay little or no dividends
      - Examples: Amazon, Apple, Google, eBay, Berkshire Hathaway, Starbucks
  - - - Range from speculative stocks of small companies that have never shown a profit to blue chip stocks of large companies that are growth-oriented
      - Potential for attractive returns
      - Considerable risk and volatility
      - Difficult to put value on due to erratic or no earnings
      - Examples: Microsoft, Cisco Systems, Yahoo!, NVIDIA, SanDisk, Intel, Electronic Arts
  - - - Companies lack sustained track record of business and financial success
      - Earnings may be uncertain or highly unstable
      - Potential for substantial price appreciation
      - Stock price subject to wide swings up and down in value
      - Examples: Sirius XM Radio, Dreamworks Animation, Liberty Media, Under Armour
  - - - Stock price tends to move up and down with the business cycle
      - Tend to do well when economy is growing, especially in early stages of economic recovery
      - Tend to do poorly in slowing economy
      - Best for investors willing to move in and out of market as economy changes
      - Examples: Alcoa, Caterpillar, Genuine Parts, Lennar, Brunswick, Timken
  - - - Stock price remains stable or increases when general economy is slowing
      - Products are staples that people use in good times and bad times, such as electricity, beverages, foods and drugs
      - Gold stocks are a form of defensive stock
      - Best for aggressive investors looking for “parking place” during slow economy
      - Examples: Walmart, Checkpoint Systems, WD-40
  - - - Provide opportunity for above-average returns (or losses)
      - Usually do not have a financial track record
      - Earnings tend to grow in spurts and can have dramatic impact on stock price
      - Usually not widely-traded; liquidity is an issue
      - “Initial Public Offerings” (IPOs)
      - Examples: Callaway Golf, Wendy’s, Shoe Carnival
    - - Provide opportunity for greater capital appreciation than Large-Cap stocks, but less price volatility than Small-Cap stocks
      - Usually have long-term track records for profits and stock valuation
      - “Baby Blues” offer same characteristics of Blue Chip stocks except size
      - Examples: Logitech, American Eagle Outfitters, Garmin Ltd.
    - - Number of companies is smaller, but account for 80% to 90% of the total market value of all U.S. equities
      - Bigger is not necessarily better
      - Tend to lag behind small-cap and mid-cap stocks, but typically have less volatility
      - Examples: Walmart, Exxon Mobil, Apple