What is a "stock split" and "dividend"?

[digitalwanderer]

My wife is all happy/excited because CVS just announce their stock is doing a 2-1 split and she'll be getting dividends on all her stock.

What does that mean in english for those of us who are financially ignorant? :|

 

[bystander]

Hope this may help

Stock split

Companies usually split their stocks to cut the price and increase the number of outstanding shares.

So why do they do it? Conventional wisdom holds that companies split their stocks after reaching a threshold price so that they are priced low enough for individual investors to buy. Once a stock price shoots higher than $100, for instance, evidence suggests that individuals tend to back off from buying because they are hard pressed to come up with the $10,000 or more needed to buy in round lots of at least 100 shares.

Dividend

A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly. Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends. The companies that offer dividends are most often companies that have progressed beyond the growth phase, and no longer benefit sufficiently by reinvesting their profits, so they usually choose to pay them out to their shareholders. also called payout.

Edit: clarified dividend definition

 

[digitalwanderer]

So it's a GOOD THING(tm), thanks.

 

[epicstruggle]

the stock has done pretty good over the last few months.

epic

 

[digitalwanderer]

Well if it helps anyone any she thinks it is going to do better in the near future, she said she didn't expect a split until later this summer when they announce some stuff or something.

 

[Guden Oden]

So it's a GOOD THING(tm), thanks.

Well, it depends. Dividends for example means taking money from the company and giving it to shareholders, money that really could have been put to better use in r&d, etc. As many companies tend to be both largely owned and run by rich people, it's essentially them bleeding the company so they themselves profit from it.

 

[digitalwanderer]

Ah, but in this case it's us that are profiting from it so I'll still count it as a GOOD THING(tm).

 

[epicstruggle]

Ah, but in this case it's us that are profiting from it so I'll still count it as a GOOD THING(tm).

Keep this up and youll surely turn republican.

 

[RussSchultz]

So it's a GOOD THING(tm), thanks.

Well, it depends. Dividends for example means taking money from the company and giving it to shareholders, money that really could have been put to better use in r&d, etc. As many companies tend to be both largely owned and run by rich people, it's essentially them bleeding the company so they themselves profit from it.

Ummm, why put money into something if you can't get any reward from it?
*boggle*

 

[digitalwanderer]

Also this particular company has been around for a while and most of the people working for it own a piece of it and none of them want to see the chain going belly-up and putting themselves out of work and all so I don't think they'd be doing it unless they were quite capable of it.

(Whew, long sentence! )

 

[Guden Oden]

Ummm, why put money into something if you can't get any reward from it?
*boggle*

Who says they couldn't get any reward from it? *bogglesx18* If they'd at least put the money in the bank, they'd profited from it in the form of interest, plus it would have been a safety buffer in case of a rainy day or 300. If they throw it at their (typically already rich, or very rich) shareholders they definitely don't profit from it at all!

 

[mito]

SELL SELL SELL!!! while there's still time!

 

[Basic]

Uhm...

X let Y use some of his/her money, and in exchange Y gives some extra money back. If X didn't get some extra money, there really wouldn't be any reason to lend/invest anything in the first place.

It's as simple as that. The stock value on a sound market is all expected future dividends accumulated (converted to current money). (Maybe +/- some tax-effects from buying/owning/selling them.)

And don't try to say "but if the company always invest all profit, each share will be worth more, and the owner will benefit when/if they sell the share". If you think that works forever, then you could just as well "invest" your money in pyramid games. Because if you don't allow any dividends, you've effectively disconnected the stock price from how well the company run, in a way identical to pyramid games.

If you want to see how well it works with "long term investment" based on how much the stock price will raise without looking at how much dividend you expect to get - just look at the burst dot-com bubbles.

 

[MPI]

Ummm, why put money into something if you can't get any reward from it?
*boggle*

Who says they couldn't get any reward from it? *bogglesx18* If they'd at least put the money in the bank, they'd profited from it in the form of interest, plus it would have been a safety buffer in case of a rainy day or 300. If they throw it at their (typically already rich, or very rich) shareholders they definitely don't profit from it at all!

Wtf are you on about? The problem with most companies today is that they don't pay _enough_ dividends, which was the prime reason for the invention of the corporation. Instead you get major companies that doesn't re-invest proceeds in their core business, but instead invest in _other_ businesses in a whole spaghetti thingamajig. Car companies owning insurance companies, General Electric opening banks(GE Money bank) and whatnot... I don't like it.

And if I'm a shareholder I'm part-owner, and of course I'm entitled to a share of the company's profit! How the hell could one claim it to be otherwise?

 

[RussSchultz]

Ummm, why put money into something if you can't get any reward from it?
*boggle*

Who says they couldn't get any reward from it? *bogglesx18* If they'd at least put the money in the bank, they'd profited from it in the form of interest, plus it would have been a safety buffer in case of a rainy day or 300. If they throw it at their (typically already rich, or very rich) shareholders they definitely don't profit from it at all!

I'm talking about the investors getting something back for their money.

The investors (this "rich" people you rail against) buy shares of the company, i.e. give the company money in return for part ownership, in hopes for a return on their investment.

The company, in its growth stage, uses this money for investment in itself to buy capital items, hire employees, etc. Later on, when its relatively stable and doesn't need all that cash, it pays back investors.

 

[digitalwanderer]

Hold on a tic, does this mean I'm a rich person?!?!

 

[RussSchultz]

Only if you believe the talking points of the WSWS.

Because of the 401k, a huge percentage of the working people in the US are investors in one form or another. Being an investor does not make you subjectively "rich"; at least no more than owning a refrigerator and a computer does.

 

[digitalwanderer]

Being an investor does not make you subjectively "rich"; at least no more than owning a refrigerator and a computer does.

I was being sarcastic, I don't figure I can qualify as "being rich" until I'm all technically out of debt.

 

[Basic]

Hold on a tic, does this mean I'm a rich person?!?!

Yes, you capitalist pig.

 

[Joe DeFuria]

Hold on a tic, does this mean I'm a rich person?!?!

Yes, welcome to political class warfare.