LEVEL 3 GLOSSARY
-
Dividend
Not all companies pay dividends, but when they do, you should say "Cha-ching!" Dividends are payments the company makes to their shareholders. They're a way of giving the shareholder a piece of the profit pie.
-
Dividend Yield
Put your dividend dinero into a percentage: a $1 annual dividend for a $10 stock has a 10% yield.
-
Earnings Per Share
This is the amount of money earned per every one share. If the company made $1 million in profits and has 1 million shares outstanding, the EPS would be $1.
-
Liability
Think of this as debt, but then cast the net a little wider. Liability is the obligation to repay its loans, IOUs, payroll, leases, pensions, vacation hours, and taxes a company owes.
-
P/E Ratio
Stocks work hard for the money, so hard for it honey—ahem. P/E ratio is "price-to-earnings": it tells you how much you’re paying for the earnings that a share is generating. For those of you who are visual learners, P/E Ratio = price per share / earnings.
-
Retained Earnings
If you're expecting a dividend check and end up empty-handed, it could be because the company decided to keep the earnings and put them back into the business. This money, and all other earnings the company keeps, are called retained earnings. The amount of a company's retained earnings can be found in the shareholders' equity section of the balance sheet.
See full glossary
In Level 3, we'll introduce you to the advanced concepts of investing. Just like the first two levels, there will be some concepts and one quiz. Ace the Level 3 quiz and people will be very impressed when they see your Report Card. So dig in, have fun, and ace that quiz! Good luck!
- The role of risk
- Diversification
- Corporate actions
- Dividends
- Reinvesting
- Issuing more shares
- P/E ratio
- LEVEL 3 QUIZ
Gee, GE...thanks for the money!
One of the biggest companies in the world is General Electric (GE). From aircraft engines to medical software to entertainment, GE is all over the place.
Because it's such a diversified company and has been around for so long (1878, if you're counting), many people look at GE as a "blue chip" company.
Which means it's one of those steady, stable companies that should be around for a while.
But there's another thing that keeps people's interest when it comes to GE: dividends.
GE has been paying a dividend for more than 60 years, which is a pretty good indicator that they know what they're doing. If they have enough money to pay out a dividend every year for that long, well, that's some pretty good stability right there.
And you haven't heard the best part: They've been steadily increasing that dividend. So year after year, the dividend payment has gotten fatter and fatter.
No wonder people think of this company as an elite, blue-chip company.
But as we all know, 2008 was a rough year. Companies were faced with tough decisions about how to stay solvent during tough times. And that included GE.
In early 2009, they decided to cut their dividend by a third in order to make sure they had enough money to keep the company going.
That was a historic announcement: For the first time in more than 60 years, GE would be cutting its dividend. Guess what happened to the stock price? It went from around $9 to $6 in a matter of days.
The stock price eventually recovered from the big news, but GE is a great example of how dividends matter to investors — and to a company. They can help or hurt the price, depending on the situation.
So the next time you go hunting for stocks with a generous dividend, make sure you're looking at a good company too. Buying based only on a payment isn't smart investing -- it's almost like the stock is buying you. Well, kind of. But you know what we mean.
- Bookmark this page:
-
-
-
-
-
-
-
