This is an extra of the book “Investing in shock and Shares” written by John White, which explains us the basic components of shares and what are they used for.

On the one hand, the text states that a share is an asset (land, building, fitting…) given to the investor, which gives him a dividend once or twice a year. The person that owns the shares is called shareholder.

On the other hand, the writer explains the concept of nominal value of the share as, the part of the company that the share represents (25p normally), so basically, if the company is profitable the shares value will increase. There are also some non-voting shares, with these shares you can enjoy most of the benefits nevertheless, you can not take part of the company’s strategy. Anyway, these non-voting shares are quite unpopular for investors.

As I said before the shareholders receives once or twice a year dividends from the shares. We can define dividends as that part of the profits from the company that are distributed to shareholders; the rest of the profit will stay to the internal growth of the company. The number of times that a company could have paid its net dividend it is called the cover of the dividend. The P/E ratio measures how many years of earnings per share at the actual share price would be needed to pay for one share.

Another important concept related to shares is the yield, which is represented as a net percentage of the share price. The yields you can obtain in each country are usually lower than the interest you can obtain in local bonds or assets with similar risk, because higher risk represents higher interest. The lower return from shares reflects the growth potential of dividend payouts.

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