Tag: Dividend

  • Adjusted Closing Price – Find a Stock Return By Using It

    Adjusted Closing Price – Find a Stock Return By Using It

    A basic mistake is considering the closing prices of stocks for analysis instead of Adjusted closing price. 

    If you’re a beginner in investing, you probably already noticed the expression like “closing price” or “adjusted closing price.” These two phrases refer to different ways of valuing stocks. While with the term “closing price” everything is clear when it comes to the term “adjusted closing price” things are more complex. 

    When we say closing price it refers to the stock price at the close of the trading day. But to understand the adjusted closing price you will need to take the closing price as a starting but you’ll have to take into account some other factors too to determine the value of the stock. Factors like stock split, dividends, stock offerings can change the closing price. So we can say that the adjusted closing price gives us more exact the value of the stock.

    What is Adjusted Closing Price

    Adjusted closing price changes a stock’s closing price to correctly reveal that stock’s value after accounting for every action of some company. So, it is recognized as the accurate price of the stock. It is necessary when you want to examine historical returns.

    Let’s say this way, the closing price is just the amount of cash paid in the last transaction before the closing bell. But the adjusted closing price will take into account anything that might have an influence on the stock price after the closing bell. When we say anything it is literally anything: demand, supply, company’s actions, dividends distribution, stock splits, etc. So, you will need adjustments to unveil the true value of the stock.

    It is particularly helpful when examining historical returns. Let’s do that on an example of dividend adjustment calculation.

    Adjusted Closing PriceThe adjusted closing price for dividends

    When a stock increases in value, the company may reward stockholders with a dividend. It can be in cash or as an added percentage of shares. Whatever, a dividend will decrease the stock’s value since the company will get rid of the part of its value when paying out the dividends. So, the adjusted closing price is important because it shows the stock’s value after dividends are posted.

    Subtract the amount of dividend from the previous day’s price. Divide this result by the same day’s price. Finally, multiply historical prices by this last figure.

    For example, the prior trading day was Tuesday and a stock closing price was $50. The day after, on Wednesday,  it starts trading at a last price minus dividend, for example, trading ex-dividend based on a $4, so the stock will be trading on Wednesday at $46. If we don’t adjust the last price the data, for example, the charts will show a $4 gap.

    What do we have to do?

    We have to calculate the adjustment factor,

    So, by following already described we have to subtract the $4 dividend from the closing stock price on Tuesday (in our case)

    $50 – $4 = $46

    Further, we have to divide 46.00 by 50.00 to determine the dividend adjustment in percentages. 

    46.00 / 50.00 = 0.92

    The result is 0.92.

    Let’s see how to adjust the historical price.

    The next step is to multiply all historical prices preceding the dividend by this factor of 0.80. This will alter the historical prices proportionately and they will stay logically adjusted with current prices.

    After stock splits

    Stocks split occurs when the price of individual shares is too high. So, the company may decide to split stocks into shares. When the company increases the number of shares, the logical consequence is the value of each share will decrease due to the fact that each share factors a smaller percentage.

    In our example, if the company splits each $50 share into two $25 shares, the adjusted closing price from the day prior to the split is $25. The adjustment reveals the stock split, not a 50% decline in the share price.

    New Offerings

    For example, the company decided to offer extra shares to boost capital. This means the company issues new shares of stock in a rights offering. The right offering means that the shareholders have the chance to buy the new shares at lessened prices.

    But what happens when new shares come to the market? The price of the shares, of the same company, that are already on the market will drop. How is that possible? Well, think! The number of shares is increased and each of them now cost less. It’s almost the same with a stock split.

    The adjusted closing price values the new offerings and the devaluation of each individual stock.

    Find a stock return 

    A stock’s adjusted closing price provides you all the info you need to watch closely to your stock. You can use some other methods to calculate returns, but adjusted closing prices will spare you time. As we see in the text above, adjusted closing prices are already adjusted. The dividends are posted, the stock’s splits are done, the rights offerings also. So we can make a more realistic return calculation. The adjusted closing prices can be an excellent tool that can help us improve our strategies. Moreover, we can do that in a short time since the adjusted closing price already took into account almost all factors that directly impact the overall return. For example, just compare the adjusted price for a particular stock over some given period and you will find its return.

    It’s easy to find historical price data, just download it. Further, mark the column of dates and a matching column for adjusted closing prices and set up in descending order. For example, you want to examine a period from March to October. On the top, you should have data for March and below data for April and so. 

    Let’s find the return

    Firstly, compare the closing price in one month to the closing price from the prior month. To unveil the percentage of return you have to divide the chosen month’s price by the previous month’s price. Subtract the number 1 from that result, then this new result you have to multiply by 100 to turn it from decimal to percentage form.
    It should look like this:
    In March stock price was $50, in April it was $55, so the return was 10%

    ((55/50)-1)x100 = 10

    Since you have to do this calculation for each month add the column for return if you are working in a spreadsheet.

    To calculate the average return for the given period, from March to October, just sum each return for all months you observe and divide the result by the number of months.

    Simple as that.

    Bottom line

    The adjusted closing price is a stock’s closing price on any chosen trading day but altered to cover dividends posted and the company’s actions like split shares and the rights offerings that happened at any time former to the next day’s open.

    So, you can see that for serious analysis, the closing price will never reveal the real value of the stock, the stock’s value after considering any company’s actions. So it is always suggested to use the adjusted closing price if you want reliable analysis.

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  • What is Mutual Fund Investment?

    What is Mutual Fund Investment?

    What is Mutual Fund Investment?
    Can mutual funds give you better returns, are they safer investment choice, what are types of mutual funds? Read all here.

    By Guy Avtalyon

    A mutual fund is a company that puts together money from many people and invests it in stocks, bonds, or other assets. The investment portfolio of a mutual fund is a combination of stocks, bonds, and other assets. When an investor acquires shares of the fund becomes the owner of the part of these holdings.

    Mutual funds investment can give you a better return in a much safer way

    The performance of mutual funds depends mainly on the fund manager who manages the fund on your behalf. Making the decision based on knowledge, picking a well-performing fund manager is utterly important to your success. For all of that, you should need some basic information on mutual fund investment.

    OK, you own the mutual funds comprising a collection of stocks and bonds. That is your upper hand.

    Why? First of all, it allows you to buy in with notably less money than it would take to purchase the same portfolio of stocks/bonds on your own. Second, you spread the risks out there among a group of investors if something goes wrong.

    How the mutual fund portfolio is structured

    It isn’t one single stock or bond of one sector alone. Therefore you can reduce your risks of losing your money to a greater extent. Always keep in mind that you may be the worst loser in the stock market due to a periodical deep cut in share prices. True is, there is no full-proof method or strategy that is completely safe and without risks. That’s the fact. But, mutual funds have lower risks than many other investment options. This makes them suitable for novices, traders who lack proper knowledge and skills in the investment market.

    Mutual funds often have much better rates of return than the average savings account at the local bank.

    Besides that, you may have minimum risks in this type of investment compared to other more risky ventures.

    Even more, if you have some idea of which sectors are performing well, you are at an advantageous position of choosing a good sectoral fund. But be cautious, you should select a well-rated company. Diversification is the key to a healthy portfolio and mutual funds will help you get a diversified portfolio.

    This is one of the safest ways to invest your money in the long term if you are young enough and in no hurry for retirement because the most mutual funds do not have the high payoffs that many investors seek to include for their retirement planning.

    What are the main types of mutual funds?

    Essentially, there are three types of mutual funds with some variations on each:

    Money market mutual funds are an open-ended mutual fund. These types of funds invest in short-term debt securities. This is regarded as safe as bank deposits yet providing a higher yield. These funds are great for long-term investors. This slow and stable access to investing is better than leaving your money in an interest-paying savings account.

    Equity funds that may provide slow growth over time with some income along the way.

    Fixed income funds are created to provide a current income. This is great for those who have retired or for investors who are extremely conservative.

    Besides this, you need to have certain basic knowledge about diversifying your portfolio of rated mutual funds. That can give you an attractive return with the highest safety. In a roar bull market, investing in Diversified Equity Fund is the best option (60% of the total fund), then comes Balanced Fund (20%), followed by Midcap Fund (10%), Small-cap Fund (5%) and Liquid Fund (5%). If you’re a conservative trader, you may opt-in Debt Fund. But if you’re optimistic, you can go for index funds as a systematic investment plan. Index Fund can deliver you a very profitable return in a bull market. Why? Because index fund includes highly rated performing stocks with diversified sectors and reliable.

    One of the benefits of investing in a mutual fund is that offers professional investment management and potential diversification

    Ways to earn money by investing in a mutual fund:

    Dividend Payments. A fund earns income from dividends on stock or interest on bonds. The fund pays the shareholders almost all the income, lower for expenses.

    Capital Gains Distributions. The price of the securities in a fund may grow. By selling a security that has increased in price, the fund has a capital gain. At the end of the year, the fund shares the capital gains, lessen by any capital losses, to investors.

    Increased NAV. When the market value of a fund’s portfolio rises, the value of the fund and its shares increases also. If the NAV is higher the value of shareholders’ investments will be higher too. NAV is calculated by adding up the current value of all the stocks, bonds, and other securities, including cash, in its portfolio. Then, subtract the manager’s salary and other expenses, and then divide that result by the fund’s total number of shares.

    All funds carry some level of risk. It is possible to lose some or all of the money you invest. The reason is obvious, the mutual fund holds securities that can decrease in value. Dividends or interest payments are also changing along with changes in market conditions.

    A fund’s past performance is not important because past performance does not predict future returns. But past performance will never tell anything about the future performances but can tell you how volatile or stable a fund has been in the past. If you find a fund had more volatility, that is a sign that there are higher investment risks.

    Every mutual fund must file a prospectus and regular shareholder reports, that’s by the law. Read the prospectus and the shareholder reports before you invest. Also, the investment portfolios of mutual funds are managed by investment advisers. You should always check that the investment adviser is registered before investing.

  • How Do Dividend Paying Stocks Work?

    How Do Dividend Paying Stocks Work?

    How Do Dividend Paying Stocks Work?
    Dividends may be a sign of good stock but never invest in some stock just because of dividends it pays.

    By Guy Avtalyon

    The dividend is like interest on a loan. A company that earns real money every year operates with it on three options. First, the company can reinvest earnings to make new products, find more customers, or to make business more efficient. Some companies can buy back their stock in order to own more of the company and more profits. The third way is to return some of the money to shareholders through dividends. It is very important to understand how dividends work. Stocks that pay dividends can be great to hold.

    Dividends are like interest on a loan. Assume you loan your relative $1000 for a year at 5% interest. You expect to get back your $1000 plus that 5%, which is  $50 more. The dividend is that except the $1000 stays in the company because you still own part of it. It’s your part of the profit the company made.

    Unfortunately, not all companies will pay dividends. Some companies don’t make the profit and they can’t pay out anything. Other companies flow all of their money back into the company to grow faster. The rule is there is no rule. What works for one business doesn’t work for others.

    Is investing in dividends a good choice?

    I know some people who like to receive dividend checks. For instance, some reliable companies may payout every three months. Even if the share price has small moves every year, investors still make money from these dividend payments and they don’t have to sell their shares to get that money. The check comes at the end of a certain period.

    This money gets paid to all shareholders, no matter how many shares they own. The retiree who owns one share of some company gets the dividend in the same way as the wealthy hedge fund manager. The reliability of dividends gives them attractivity in investment.

    Do Stock Pay Dividends?

    High dividend-paying stocks have rates of 5%, 10%, or even more.

    Why they are so high? It is simple to explain. Let’s see this simplified example.

    A company with a share price of $100 which pays a dividend of $1 per share every year has a dividend yield of 1%, while a company with a share price of $10 which pays out $1 per share every year has a dividend yield of 10%.

    Notice that the price you pay for a stock and the growth of the business over time determine how much money you make on that stock. Keep in mind there’s no shortcut to investing little money with high returns. Unfortunately, but that’s true.

    The easiest way to find if a stock pays dividends is to look at any stock research site. You will find a dollar amount for the latest dividend announced, the annual amount paid, and the current yield. Always check the dates. The point is that stock may pay out one quarter and not the next.

    Is it profitable to invest in the high dividend-paying stocks?

    High dividend-paying stocks are paying more than the average dividend rate. Companies that pay high dividends are considered as good companies. But they may have some other reason like to attract investors to drive up the share price. It also may be a sign that the share price has dramatically gone down recently. Sometimes this means the stock is on sale or that the company is in trouble. You can’t know this just by looking at the share price or how high is the dividend amount. You have to have better information about the company’s business and its current financials.

    The company must choose to pay a dividend and the amount paid may vary. Not all companies will regularly raise the number of its dividend payments.

    Is investing in stocks that pay dividends a good strategy?

    Yes, especially if you want regular cash coming in reliably. Reliability is the keyword because dividends aren’t guaranteed. You still have to do your research. It is better to buy great companies, not just stocks that pay the highest dividends per share.

    High dividend stocks are not necessarily a good investment. Pay attention do they pay them every year, every quarter or does a certain company follow a regular schedule for the rise of its payment amount. It is possible to make more from dividends every year per share than you initially paid for the stock. Keep in mind this the tricky part of a dividend yield of stocks; it’s always calculated relative to the current price, not what you paid. A company that pays a huge dividend is a warning sign. How does the company plan to maintain its payment strategy? Is this a temporary trick to raise the stock price to fake levels? Always think about reliability.

    Does value investors make money from high dividend-paying stocks?

    Dividends are excellent. And value investing looks for underpriced stocks.

    “What are the best stocks to invest in?” or “What are the reasons to invest in a company?”, can be the questions you ask yourself. In that case, dividends may be a sign of a good stock. But not all great stocks pay dividends, indeed. Some never do. Some pay from time to time. It depends.

    If you pick a powerful company that gives you a check every quarter and if the price is right relative to the value, then you have no problem. That gem belongs to you.

     

  • How to Find Dividend Yields on Stocks’ List?

    How to Find Dividend Yields on Stocks’ List?

    How to Find Dividend Yields on Stocks' List?

    By Guy Avtalyon

    The dividend yields are metric. For every single investor, the most important question is ‘How much money can I make’. At least, the reason to buy a stock or bond or ETF is to make money. It is important to understand what people mean when they talk about yield, return, and types of both. Investors have several ways to measure the money they expect to get, Depending on their investment strategies, investors have several ways to measure the money they expect to get. Managing risk is important. 

    What produces the dividend yields?

    Yield is the earnings you can make with an investment in a period of time. It’s the cash you get from making the loan. For example, you loan a friend $1,000 for a year. And your friend agrees to pay you back that $1,000 in twelve months, as well as $10 a month. For that loan, you’ll get back the principal as well as an extra $120.

    That means you’ll end up with 12% more money at the end of the year than you started with. This is easy to understand with loans and it’s similar to bonds, where the bond rate and payout periods determine what kind of money you get back and how often you’re paid.

    Do bonds give yields?

    But bonds are a little bit more complicated than loans because you can buy them from other investors. But the yield falls as the price rises because the yield depends on both the interest rate and the price you paid.

    Let’s say someone else bought the loan to your friend for $1100 and the 12% interest rate stayed the same, they’d only get $20 for the year, or 1.82% interest. That’s a  different yield from 12%, don’t you think.

    What determines the yields?

     

    The yield depends on both the interest rate and the price you paid. If you want a higher yield, you either need to earn more money from your investment every month or pay a lower price for the investment.

    Hence, there are different types of yield you can measure. But, you must know how stocks produce yield, for this to make sense.

    Do stocks give yields?

    Stocks don’t pay interest, but stocks may pay dividends. The dividend yield is easy to compare to other investments if you know what you paid for a stock. The problem is you can’t measure what everyone else paid for it. There are more possible to see the current yield of a stock, which divides the annual dividend payout with the current price of the stock.

    How to find dividend yields?

    If you want a regular cash income from your stock portfolio, you’ll have to understand dividend yield. The dividend yield is a pivotal metric that enables investors to analyze stocks. According to stock capability to generate dividends traders are trading them at many higher prices. To define dividend yield, you’ll need to know the total of a stock’s dividend payments per year and the current stock price.
    To calculate dividend yield you’ll have to add all the dividends paid per common share over the last year. Further, divide this amount by the current price. Then, multiply this result by 100 to discover the yield.

    For example, if the stock trades at $10 per share, the dividend yield is $0.70 divided by $10 and times 100, which is 7%.
    That would mean that for every $100 you invest in this stock, you receive income of $7 per year. Compare dividend yields of different stocks, and you’ll find the best investment choice.

    What is the difference between dividend yields and returns?

    But, not all stocks pay dividends. You might earn a great return that never pays you a penny.  But it is possible you’ll get money from selling a share for more than you paid for it. The same goes for bonds.

    Slowly, that combination of the profit you made from the sale plus any dividends you’ve received makes up your total return. Exactly as with yield, the price you paid is the most important factor in your return.

    But notice that there is one more essential difference between yield and return.

    The yield looks to the future.

    What can you earn in a year, what dividends will you receive, what interest payments will you get? These are predictable, depending on the risk of the investment of course.

    Return looks to the past.

    It includes interest or dividend payments, but it also depends on the price at which you sold your investment.

    What to maximize yield or return?

    The real goal of understanding yield and return is to compare how similar investments meet your investing goals. Any investment that returns money to you, produce regular income. If you can live from the incomes of your investments, that can be a great modus operandi.

    But if you want to build real wealth and you have enough for a long-term investment, total return is more important. But never ignore yield because it can be a great way to make better your returns. Pay attention to yield but look for good returns from share price realization as well.

    Whatever, being careful about the price you pay for investment will help you improve your yields and total returns.