When anyone invests money or time, there is a risk-return ratio. Why am I doing this and what do I get back? the emphasis is on getting back. In terms of money, we know the safest place to invest your money is generally – the most senior level of government for the government can raise taxes to pay the bills. If you were to buy, the returns would be near the bottom, unless your country is in serious financial problems (Greece). If you do not like the governement – look at corporate debt – private companies and there is a broad range here, with mature companies a lower risk than start up companies. In an ideal world, at the end of the day, your investment in a start up company should or hopefully make you more money than a mature company. However, most start ups fail, but every once in a while the ones that do well do very well. The likelihood of a mature company failing is limited, not impossible, but the signs will reach the general public well in advance.

If you are okay with the debt of the mature companies, then it is time to look at the stock which is where the companies paying dividends fit. Every stock for every company moves up and down, with the cycles. Today we are in summer, you can think which industries benefit more in the summer. If a company benefits more in the summer, the stock price should move up as the results come in and go down if the expected results do not come in. For example if we expect cement companies to benefit in the summer as construction projects are in full swing, if the cement companies do as expected the stock will tend to go up. If the results are not as expected the stock price goes down. Just becomes a stock price goes down, does not mean the company lost money. It can mean other things – they did not make as much as expected; the margins they had last year were down or instead of making 20% they were making 15%, but the company still made money. As long as they make money, they can still pay a dividend. (One company I worked for was making over a billion dollars a quarter, a “bad” quarter was under a billion. A billion dollars is still making money.)

When you buy the stock for the dividend, the price of the shares will go up and down, because the company tends to be a mature (ie older company with established market share),the company makes money every year. Most of the time the difference between the high and low is not that great so you likekly will not triple your investment unless you own the company for a number of years. The company pays a dividend over the years, and you have the added bonus of stock appreciation which is why you are ahead on the risk – return ratio.

There are always more questions than answers, till the next time – to raising questions.