How_Money_Works_-_The_Facts_Visually_Explained

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Can a company

afford the dividends

it promises?

By comparing a company’s profit with

the amount it pays in dividends over

several years, investors can judge if

that company is a good long-term bet

for providing a future income stream.

Older, larger, and more established

companies with steady earnings

tend to pay healthy dividends,

although their share value may not

rise by much.

PROFIT RELATIVE TO DIVIDEND

2010 2 011 2012 2013 2014

EARNINGS VS DIVIDENDS PER

SHARE, S&P 500 COMPANIES

YEAR

Pro

f^ t

Dividend

❯❯Preferred share

Share that entitles

the holder to a fixed

dividend that is

prioritized over ordinary

share dividends.

❯❯Dividend cover

How many times over

the dividend could be

paid out of the

company’s profit.

NEED TO KNOW

Company B

❯❯Much-hyped float on

the stock exchange.

❯❯Offers high dividends

but value soon falls.

$

$

$

$ $

Poor dividends likely

$ $

$ $ $

$ $ $

❯❯The company reduces the

dividend—a signal of rocky

financial times ahead.

❯❯There is a fall in profts and the

company must borrow in order

to cover its dividend payouts.

❯❯The share value falls, meaning

the initially high yield offered on

dividends is short-lived.

PERSONAL FINANCE

Investments for income

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