For Drez. Can you explain dividends in the stock market?

[kmitchell]

I recently doubled up my $200 investment in Citigroup, and my brother was trying to talk me into putting $400 on GE. The price is $10 a share, and the dividend is $1.24, with a yield of 13%. What exactly happens if I bought 40 shares of GE with that dividend amount?

[John Galt?]

several things could happen;

1) you buy it and you'll get a ck for $12.40 every quarter. Of course the stock will drop the amount of the dividend on the ex-div date.

1a) they have a reinvestment program, so every Q you get an extra 1.24 shares or whatever the price works out.

2) they reduce or cut their dividend (to conserve cash) and you get less or nada. The stock could go up or down on this news.

3) The stock goes up regardless of dividend news and you make money.

4) The stock goes down regardless of div news and you lose.

[ufojoe]

My Dad was holding onto his GE stocks (that my grandfather left when he died) when the stock was 30+. I told him to sell because I thought the economic 911 was going to occur. But he said he loved the dividend. But who cares what the dividend is if the bottom falls out of the stock? And, unfortunately, it did. And to top it off, they recently cut their quarterly dividend from 31 cents a share to 10 cents a share. It was the first cut in 71 years. I felt bad but what else could I do? He wont listen to me.

[John Galt?]

My Dad was holding onto his GE stocks (that my grandfather left when he died) when the stock was 30+. I told him to sell because I thought the economic 911 was going to occur. But he said he loved the dividend. But who cares what the dividend is if the bottom falls out of the stock? And, unfortunately, it did. And to top it off, they recently cut their quarterly dividend from 31 cents a share to 10 cents a share. It was the first cut in 71 years. I felt bad but what else could I do? He wont listen to me.

So their Div yield isn't 12%, it is more like 3.8%.