Description - Dividends and Earnings
This lesson will help you examine the ways investors may receive earnings on their investments through dividends and by selling stocks for a profit.
Vocabulary
  • Distribution date: Date on which the dividend payment is made.
  • Dividends: Part of a company’s profits (earnings) that is pays as money or shares to stockholders. In The Stock Market Game, any dividends received are listed in Transaction History and are included in the portfolio’s total equity.
  • Profit: What remains after subtracting a company’s costs from its revenue. Profit is a company’s reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay.
  • Price/Earnings Ratio: A company’s closing price divided by its latest annual earnings per share. The Price / Earning is the relationship between a company’s earnings and its share price. It is calculated by dividing the current price per share by the earning per share.
  • Record Date: Date set by a company on which an individual must own shares to be eligible to receive dividends.
  • Stock split: Replacing each share of stock with a larger number of lower-priced shares. A stock split keeps the shareholders’ total investment value unchanged.
  • Yield: The rate of return on an investment paid in dividends or interest. It is expressed as a percent.

Objectives
After this activity you need to be able to…
  • Draw conclusions as to how to examine a company before making investments.
  • Describe the factors that influence investment decisions.
  • Calculate dividends paid out to stockholders.
  • Calculate net gain/loss for an investor.
  • Explain the difference between earnings and dividends.

Task
When I was in school my parents gave me a quarter for every A on my report card. Do any of you get a reward for doing really well on a report card or test? Sometimes, if I performed better than they expected I got a bonus or dividend for doing so well. Some corporations do so well year after year, meeting their profit goals that they pay investors a dividend or bonus for each share of stock.

Define: Dividends: A portion of company profits, distributed on a per share owned basis, to investors in a company.

Procedure
How do investors make money on their investments? Other than buying and selling stock, are there other ways to earn money on investments?

Discuss
Go to Yahoo Financial site, identify a company that paid a dividend. Discuss why dividend stocks are attractive to some investors.

Print out and as a team complete the assignment using complete sentences.
Now read the selection and answer the questions. Share you team's answers on the wiki and develop a group set of answers.

Investors at certain stages in life are more interested in the dividends than at other times in life.
Answer
1. Why might someone close to retirement be more interested in the dividends paid by investments than a young investor?
2. What other measures of a company’s “health” would you like to have before deciding to invest in the company?

Assessment
Be able to discuss in small group discussion the knowledge you individually gained.