Firms that make profits have two choices – they can either keep them and reinvest them in the hope of making more profits or pay them out to shareholders as a dividend. Let’s say a firm makes profits of 10p per share, it might decide to pay out 2p per share as a dividend. This …
An important question for a shareholder relying on dividends is whether a firm will be able to afford to carry on paying them in the future. One measure of this is dividend cover. This is the number of times the profit available to pay a dividend actually covers the dividend paid. So for example if …
Firms and other organisations that carry a lot of debt funding are said to be leveraged. It means they are quite exposed if their cost of borrowing increases. At times of financial stress these firms have to find a way to reduce their exposure to debt and this process is known as deleveraging. When this …
In very simple terms a derivative is an instrument that derives its value from another one. There are three basic types – the future, the option and the swap. These tend to be used by mainly institutional clients. For a retail investor the nearest thing to a future is a spread bet. This allows you …
Here a broker has the power to help you create a tailored portfolio and to make investment decisions on your behalf. Investors who don’t have the time, inclination or expertise to make their own investment decisions often use a discretionary service. READ MORE
If you own an income stock you want to know what annual return you are making. Enter the dividend yield. This is a firm’s annual dividend as a percentage of the current share price. So if the annual dividend is 10p per share and the share price is £1, the yield is 10% ((10p/£1) x …
This is your permanent legal home for tax purposes. It is usually the country you were born in or the one where your parents spent most of their time if that was not the country of your birth. It matters because, amongst other things, it is a key determinant of how you will be taxed …
These are mature, typically western, markets that are expected to grow at modest rates and offer reasonable security to investors. Examples include the US, the UK, Europe and Japan. Developing markets on the other hand are those that are growing faster but from a lower base. As such they offer greater growth rates but also …
This captures the sensitivity of the price of a fixed income security to a change in interest rates, all in one number. Two of the factors that influence bond prices are general interest rates and the time remaining until the security is redeemed, or bought back. A security with a high duration is usually more …
One pound today is worth one pound. But what is one pound received in one year worth now? The answer depends on interest rates in the meantime. If interest rates are 10% one pound now could be invested to earn 10p over a year so that pound – which will be worth 110p – is …
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