The Importance Of Dividends
As previously noted in a different context, when a company makes
money it usually pays a part of its earnings to its shareholders
in the form of dividends. A typical payout is about 50 percent of
the earnings. Thus, if a company made $20 million in a year and
if there were 5 million shares of stock, this company might
declare dividends in the amount of $10 million, retaining the
other half for immediate operations and/or expansion. So if there
were 5 million shares of stock in the company, each shareowner
would receive $2 per share. If one owned 100 shares, the dividend
would be $200. To carry the arithmetic a step further, if a stock
sold at $40 per share and yielded a $2 dividend, the rate of
return per share would be 5 percent.
