Investing in stocks is not only for those big capital gains that create excitement for many investors. Dividends are an important part of the investment returns, but are often underestimated. They carry additional message, than the pure pay out of profits to shareholders. Dividends provide cash flow while one waits on a stock to increase in value. Stock prices move up and down over time.
Because of such movements and that sometimes, good companies have bad patches, when profits fail to grow much and can hold the stock price down for long periods, investor can just collect dividends while waiting on the return to stock price growth. Look at the example quoted below, while the stock price gained nearly 700 percent, since the end of 1993, the dividends have grown by over 2,000 percent in the same period. The exciting thing is that investors got paid every year since 1993. The amount accumulated over that time is large, amounting to $23.58 cents per share or more than the increase in the stock price.
Best Signal| The level of payment or future payments, may well be the best signal that investors will get from within a company that the stock price is set for upward movement. Dividend yields on stocks usually fall well below the interest paid on government paper. History dictates that yields usually return to their norm over time. We can use the level of present or future dividends as a predictor of stock prices. At the heights of the stock market in Jamaica, dividends yields fell to round two percent on average. Yields currently are 7% for many stocks, in the case of

Carreras one of Jamaica’s best dividend payers

Carreras well over 10 percent, suggesting huge gains ahead for stocks, not taking the sharp fall in interest rates, locally into consideration from high teens.
High priced stocks| New investors should not be afraid of what some persons will regard as expensive or high priced stocks, if they have the qualities to rise in value above lower priced stocks. The absolute price of a stock is not determinant, if an investment in it is warranted or not.
History confirms that a good dividend policy will provide an attractive rate of return on original investment over time. A very good example is Scotia Group. In 1993 they paid out $220 million or fifteen cents per share but paid out $4.98 billion or $1.60 as dividends, this fiscal year. The stock price at the end of 1993 was just over $3 and is at $20 now and yet the stock is undervalued presently. Those returns happened during one of the most turbulent periods, in the local capital market.
Useful indicators| Some useful indicators to follow are, financial results, one wants to see a nicely rising trajectory of earnings. Take the chart of Access earnings and revenues this is a excellent example of the picture an investor ought to be looking for. It is not surprising that the stock price of Access has done so well since it was listed.
Information such as major expansion, could mean increased sales and with that profits ahead. Developments within the economy, lower interest rates are major factors that influence the movement of stock prices. An increased dividend payment is another good indicator that things will be better going forward, as companies are unlikely to increase dividends, if profits are not growing.