Investors approach the stock market differently. Some go for quick returns and others like less varience and invest in higher dividend stocks.
Some stocks may give small earnings but an expensive PE i.e. price to earnings ratio. The investors who buy these stocks expect considerable growth and look for good returns in the form of stock price appreciation. These investors are not satisfied with a mere 10% per annum; their real aim is to make 10% in couple of days.
How is price to earnings ratio (PE) calculated? The calculation is simple enough. All you need to do is take the share prices and divide it by the expected earnings of every individual share. The result will be your PE ratio.
The stock market is very unpredictable but many investors say that the PE should stay with the stocks growth. For example if a stock traded at $10.00 and then reaches $12.50 then the growth is 25%. The PE should also be 25% then.
If the PE ratio of the stocks comes down then the prices of the stocks will also decrease. This is why many investors buy stocks with reasonable PE, which provides with good dividends. They plan on profiting from the inflow of dividend payments rather than making profit on a leap in the core stock prices. If you do not want to risk it with high PE stocks, then go for this approach instead.
If the yield for a dividend is more than 5% you can have a good ROI (return on investment) simply because there is no inflow and even if the stock does not change in price you still yield the dividend percent.
Some stocks have very high yields of over 10% but you need to watch these stocks carefully because there can be dividend cuts in the future. - 20765
Some stocks may give small earnings but an expensive PE i.e. price to earnings ratio. The investors who buy these stocks expect considerable growth and look for good returns in the form of stock price appreciation. These investors are not satisfied with a mere 10% per annum; their real aim is to make 10% in couple of days.
How is price to earnings ratio (PE) calculated? The calculation is simple enough. All you need to do is take the share prices and divide it by the expected earnings of every individual share. The result will be your PE ratio.
The stock market is very unpredictable but many investors say that the PE should stay with the stocks growth. For example if a stock traded at $10.00 and then reaches $12.50 then the growth is 25%. The PE should also be 25% then.
If the PE ratio of the stocks comes down then the prices of the stocks will also decrease. This is why many investors buy stocks with reasonable PE, which provides with good dividends. They plan on profiting from the inflow of dividend payments rather than making profit on a leap in the core stock prices. If you do not want to risk it with high PE stocks, then go for this approach instead.
If the yield for a dividend is more than 5% you can have a good ROI (return on investment) simply because there is no inflow and even if the stock does not change in price you still yield the dividend percent.
Some stocks have very high yields of over 10% but you need to watch these stocks carefully because there can be dividend cuts in the future. - 20765
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