When choosing stocks, there are many things you need to consider. In order to achieve the best group of stocks in your portfolio, consider the following.
Dividends are a great way to boost your earnings. And they are also a way for publicly traded companies to provide cash payment from their profits directly to shareholders. The frequency and the amount of the payments depend on the company’s decisions. On the other hand, these factors are mainly controlled by the firm’s financial performance.
Choosing stocks that pay out dividends is a wise move for various reasons. For one, such payments are signs that a company is healthy.
On the other hand, take note that the payments can stop at any time. The company is also under no obligations to continue playing. Historically, the companies with the highest dividend payout ratio perform less impressively than the second highest ratio.
The price-earnings ratio is the valuation of a company’s present share price compared to its earnings per share. You can easily find a stock’s P/E ratio on most financial reporting website. The P/E ratio is considered to be the best indicator of a stock’s value.
Basically, a higher P/E ratio means greater expectations for a company since investors are pouring more money for those future earnings.
Meanwhile, a low P/E ratio may mean that a company is undervalued. Stocks that have higher P/E values may require more analysis since you will, being an investor, be paying more today for future earnings.
The beta is a numeric measurement that indicates the volatility of a security in comparison to the broader market. An asset with a beta of 1 will show volatility that’s similar to that of the market. Conversely, a stock with a beta of lower than 1 will have lower volatility than the broader market. A beta of higher than 1 means the security is more volatile than the broader market.
The beta would be a great measurement to use if you want to own stocks as well as mitigate the effect of market swings.
Earnings per Share (EPS)
The EPS is a dollar figure that represents the portion of a company’s earning, after subtracting all the taxes and preferred stocks dividends, that is allocated to each share of common stock.
The EPS can be used by investors to measure how well a company can deliver value to shareholders. A higher EPS means higher share prices for the companies. You can use the EPS better and compare it with the company’s earnings estimates.
If the company regularly fails to meet earnings expectations, you may want to reconsider your plan to buy its stock.
Investors usually get interested in a specific stock after reading headlines about its record-breaking performances. There would be a problem if the performance is short-term, so to come up with a sound investing decisions, you should always consider the context.
A sudden increase in the share price over the course of a day or a week may mean a certain level of volatility, and this can lead to disappointment. It’s better to look at the trends in prices over the preceding 52 weeks or even longer.