We believe the stock market is for everyone. We’ll help you learn the basics of stock market investing and financial literacy, to help you – whether you’re 8 or 80 – invest with confidence.

Lesson 1: Dividends

Cheat Sheet:

  • A dividend is cold, hard cash some companies pay out to their shareholders.
  • Mature companies that make steady profits are more likely to pay dividends.
  • Younger companies usually don’t because they’re focused on plowing their profits back into the business.

The way most people think of making money in the stock market is by buying low and selling high. For certain stocks, you can also make money just by holding the stock. These are called dividend stocks.

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Lesson 2: Dividend Yield

Cheat Sheet:

  • Dividend yield tells you how generous a company’s dividend is.  You can use it to comparison shop.
  • The higher the company’s dividend yield, the more cash you’ll receive for every dollar you invest.
  • Older investors often use high dividend yield stocks as a steady source of income.

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BRAIN TEASER

You buy some stock a day before the ex-date and sell it the day after the record date.  Who gets the dividend when it’s paid out a month later?

A.  The prior owner

B.  You

C.  The new owner

Answer

Lesson 4: Dividend Reinvestment

Cheat Sheet:

  • Using a dividend to buy more of that stock is called “dividend reinvestment.”
  • When you do this, you end up with more shares of stock instead of cash.
  • Some brokerages will let you automatically reinvest your dividend free of charge.

If a company issues a cash dividend, it will normally show up as cold, hard cash in your brokerage account. At some brokerages, you can plow the dividend back into your stock (i.e., buy more stock with the dividend) so you own more shares instead of some extra cash.

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Lesson 5: Stock Splits

Cheat Sheet:

  • A stock split divides up the company into more shares so each share is more affordable.
  • The overall company’s value doesn’t change, nor does the dollar amount of stock you own.
  • Stock splits are decided on by the company’s board of directors.

Owning 1 share of stock worth $50 is the same thing as owning 2 shares worth $25 apiece, right?  A stock split divides up the company into more shares so each share is more affordable. Of course, the company’s overall value doesn’t change.

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