Shares1789

In this review of his book “Investing in Stocks and Shares”, Dr. John White defines and explains some important concepts about shares such as the assets, nominal share value, the dividend, the yield, amongst other concepts.

Shares enable investors to take part in the company’s assets and property. There are two types of shares: non-voting shares and voting ones. Non-voting shares produce more benefits to its holders, but they haven’t any right to vote at the company’s AGM. The aforementioned assets in a company are made up of its cash-in-hand, property and the company’s stock of raw materials and work-in-hand.

What is called nominal share value; originally it was the asset value of the company. But once they are sold, its value represents both the worth of assets and the earnings potential of the company, and this second value is called the market value.

The dividend of a company is the proportion of its profits (normally, a part of them) that is paid to its shareholders. The other part of profits not paid to their owners is retained to fund internal growth of the company. The cover is the number of times that a company could have paid its net dividend (e.g. GUS dividend’s cover at January 2003 was 1.9).

Also you must know that P/E ratio measures how many years of earnings per share (EPS) at the current share price would be needed to pay for the share (e.g. GUS P/E = 13.7). Knowing that earnings are the company’s profits and EPS is the division between the earnings and the number of shares in existence. Not all the earnings are paid as dividend. But each year it is hopes that the earnings and dividends will rise, and also the stocks do not have to be hold forever, so you can sell them at the market price at any time.

Finally, the yield is typically expressed as a net percentage of the current share price. Some examples given of long term average yields are 3.6 per cent net in UK and 2.8 per cent in USA. Often, the yields are lower than the bonds interest; it is strange because shares are riskier than bonds. An explanation of that could be the growth potential of dividend payouts.

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