When investors invest in any company, they are buying stocks. This means that they are paying for the control right and power to decide, vote as well as future cash flow gains. The investors receive dividends, which is a way for companies to pay their investors.
Canadian bank stocks have been tumbling recently however they are paying high dividends. The average relative yield of dividends jumped from around 50% from 1980 – 2005 to above 100% after the financial crisis in 2008. Uncertainty is the reason behind the high dividend yields and Michael Goldberg, an analyst at Desjardins Securities, says that the main reasons behind this are the European debt crisis and a slower growth.
When discussing banks, high dividends equals confidence while low dividends reflects uncertainty. One may ask why did the dividend yields increase in times of uncertainty. This is justifiable because when the economy is unstable, people will more likely invest in banks because they are relatively more secure. Although some bank stocks will drop, other will increase leading to a higher yield of dividends.
Works Cited
Berman, David. “How Can Banks Remove Uncertainty? Dividend Hikes! – The Globe and Mail.” The Globe and Mail. Web. 24 Nov. 2011. <http://www.theglobeandmail.com/globe-investor/markets/markets-blog/how-can-banks-remove-uncertainty-dividend-hikes/article2247570/>.
Powerpoint: class 17, Finance, oct. 27