Why People Buy Stock

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This presentation explains why people buy stock. It talks about capital appreciation and dividends.

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Why People Buy Stock

  1. 1. Why People Buy Stock? Pros and Cons
  2. 2. Why do people buy stock? When people invest in stock, they are looking to get a return on their investment in two ways: 1) Appreciation (Increase) of Value 2) Dividend Income
  3. 3. APPRECIATION(INCREASE) IN VALUE
  4. 4. A stock appreciation (increase)is the differencebetween the price you paid for the stock and itscurrent market price or value.If the price you paid for the shares is less than itscurrent value, then the stocks value hasappreciated (increased).If the price you paid for the shares is more thanits current value, then the stocks value hasdepreciated (decreased).
  5. 5. DIVIDEND INCOME
  6. 6. What is a dividend? Based on the performance of a company and other factors, a company may decide to issue a one-time payment or a dividend to all stockholders. This payment or dividend is given on a per share basis. The dividend amount is usually a very small sum.
  7. 7. Example: Phillips Morris Co. declares a 3 cent dividend to all shareholders. If you only own two shares, then your total dividend payment is 6 cents. $.03 2 $.06 Dividend x Shares = Cents
  8. 8. Important Note: Start-up companies rarely declare dividends. If you are looking for dividend income, then you should look at established corporations.
  9. 9. THERE ARE ADVANTAGES ANDDISADVANTAGES OF OWNING STOCK
  10. 10. Advantages of Owning Stock1. You own a piece (percentage) of a company. Ultimately stock is an asset just like your house or car.2. Stock can appreciate in value.3. Stock can give you current income via dividends.4. Usually yields higher returns than traditional investments such as saving accounts, CD’s, saving bonds, and money market accounts.
  11. 11. Disadvantages of Owning Stock1. Stock can decrease in value.2. If the corporation goes out of business, then your stock in that company has no value. (ENRON)3. Unless you own a significant amount of shares, you don’t have much input in the everyday operation of the corporation. You are basically placing your hopes in the management team and the employees of the corporation.4. Riskier than traditional investments such as saving accounts, CD’s, savings bonds, money market accounts.
  12. 12. Summary• People invest in stock to get a return in the form of dividend income and appreciation of the value of the stock.• Stocks usually yield higher returns than traditional investments.• Stocks are riskier than traditional investments.• Stockholders are considered owners of the corporation.

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