This presentation explains why people buy stock. It talks about capital appreciation and dividends.

1. Why People Buy Stock?
Pros and Cons

2. Why do people buy stock?
When people invest in stock, they are looking
to get a return on their investment in two
ways:
1) Appreciation (Increase) of Value
2) Dividend Income

3. APPRECIATION
(INCREASE) IN
VALUE

4. A stock appreciation (increase)is the difference
between the price you paid for the stock and its
current market price or value.
If the price you paid for the shares is less than its
current value, then the stocks value has
appreciated (increased).
If the price you paid for the shares is more than
its current value, then the stocks value has
depreciated (decreased).

5. DIVIDEND
INCOME

6. What is a dividend?
Based on the performance of a company and
other factors, a company may decide to issue
a one-time payment or a dividend to all
stockholders.
This payment or dividend is given on a per
share basis.
The dividend amount is usually a very small
sum.

7. Example:
Phillips Morris Co. declares a 3 cent dividend
to all shareholders.
If you only own two shares, then your total
dividend payment is 6 cents.
$.03 2 $.06
Dividend
x Shares
= Cents

8. Important Note:
Start-up companies
rarely declare
dividends. If you are
looking for dividend
income, then you
should look at
established
corporations.

9. THERE ARE
ADVANTAGES
AND
DISADVANTAGES
OF OWNING
STOCK

10. Advantages of Owning Stock
1. You own a piece (percentage) of a company.
Ultimately stock is an asset just like your
house or car.
2. Stock can appreciate in value.
3. Stock can give you current income via
dividends.
4. Usually yields higher returns than traditional
investments such as saving accounts, CD’s,
saving bonds, and money market accounts.

11. Disadvantages of Owning Stock
1. Stock can decrease in value.
2. If the corporation goes out of business, then your
stock in that company has no value. (ENRON)
3. Unless you own a significant amount of shares, you
don’t have much input in the everyday operation of
the corporation. You are basically placing your
hopes in the management team and the employees
of the corporation.
4. Riskier than traditional investments such as saving
accounts, CD’s, savings bonds, money market
accounts.

12. Summary
• People invest in stock to get a return in the
form of dividend income and appreciation of
the value of the stock.
• Stocks usually yield higher returns than
traditional investments.
• Stocks are riskier than traditional investments.
• Stockholders are considered owners of the
corporation.