Free Trial

Safari Books Online is a digital library providing on-demand subscription access to thousands of learning resources.

Share this Page URL

Company and investor lives: the key perf... > The life of a growth stock - Pg. 300

300 Beyond the financial pages looking for capital growth will look for shares that have a high p/e. If the market has made a correct prediction, an investor in such a share should expect to see growth of sales and profits in the company. Dividend cover This ratio of the profits to gross dividends is another useful indicator for inves- tors. Many private investors recognise the long-term benefits of a growing income stream from dividends. If they are investing for the long term, therefore, they may very well look for shares that are out of favour with the market and which, as a result, have a high yield. It is quite likely that the capital growth of such a share may be very limited in the short or even medium term. But this slow growth at the early stage is less important if the dividend payments are worth having. The problem arises where a high-yielding share has insufficient profits to con- tinue to increase or even maintain its dividend. The chances of its being able to keep the payments up are indicated by the number of times the dividend is cov- ered by the profits.