Stock Market Trading Strategy

Traditionally, the stock market investor has looked to the market for income, capital gains, or both. The income feature on common stocks is met through dividend payments, which are usually paid quarterly on a per-share basis from the profits of a corporation, or, in some cases, from assets. Common stock dividends are not fixed in amount. The payment is set by the boards of directors, usually each quarter, based on profits and overall dividend policy. It is not uncommon for a company that is suffering a temporary setback with reduced or even no profits to continue paying a dividend out of its retained earnings (past profits).

This policy is designed to retain interest in the stock among its shareholders. If a company with a long record of dividends suddenly omits a dividend payment, it is often regarded as a good reason to sell the stock. This, of course, causes a lack of demand for the stock which is the last thing the directors want. So they usually will pay up, even in unprofitable years. A record of continued and increasing dividend payments over a long period of time is one of the key factors in evaluating a common stock for Investment, because it usually indicates a healthy company. Read more