What are Dividends and How can They Affect the Price of a Stock?

This week the market is showing off to start with a lot of voluatility as many anaylstis are mixed with how they see the next few days playing out. Although the over all market outlook is mixed various stocks are still showing signs of strength.

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Last week a few companies announced that they would be increasing their dividend payout amount. This can potentially happen for various reasons depending on what the companies board of directors feels is most appropriate for the growth and of the company overall going into the future.

A dividend is a distributions of a payout of a portion of the company’s earning that is given out to the shareholders. The amount the receive is directly correlated towards the amount of shares which they own. Dividends can be paid out depending on how the company dividends is best for the growth and sustainability of the company. It could be a dividends which pays out to its investors on a monthly basis or one that is based more on quarterly sales.

Many financial advisors whom I have spoke to personally have highlighted the benefits of investing in stocks which are dividend paying stocks. This allows for you to be able to gain an extra source of income through the dividends that will be continuous regardless of the current price of the stock.

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A Raise in Dividend Means More Money in Investors Pockets

Back on May 2nd we took a look at Northrop Grumman (NYSE: NOC) as it broke through our technical analysis to reach new levels. All month we have been watching closely as NOC has been continuing to push very bullish. The company has shows their dominance in the market by continue to bring out new technology and secure more contracts for government projects.

On May 17th when Northrop Grumman was sitting at $306.69 they raised they Dividend payout amount by 10% to investors. This is a substantial increase from $4.8 to $5.28 a share that now will be paid out quarterly. This could be for various reasons from growth in sales which we have seen from previous articles where they sign contracts for $1.2 billion.

In addition Southwest Airlines raised their dividend payout by 12.5%. This is showing positive outlook for the aviation industry as companies are able to not bring more rewards back to the hands of investors which in turn will raise moral and optimism for future investors.

For example, if you own 100 shares of Northrop Grumman, that means that regardless of what happens to the price of the stock you will now be paid out every quarter $528 compared to last quarter where you received a payout of $480. As an investor looking to maximize not only their total net worth but also be able to bring in income on a more consecutive basis selecting stocks with high paying dividends ensures gains regardless of how the market plays out.

Keep in mind that a company has the ability to not only raise the dividend payout but also lower it if they feel necessary. The reasons for them to decide may vary between them deciding it may be best to reallocate those profits to reinvest into new technology and future endeavors for the business or it can also show signs of weakening profits and the need to tighten expenses.

Trading the News

Although it is nearly impossible to predict when a stock will alter its dividend payout price the market will react accordingly to any news released by the company. The news release of Northrop Grumman raising their dividend price brought a correlating movement to the bullish side as this shows positive outlook for the company and investors. Keeping an eye out to see when companies alter their dividend payout can provide incredible benefits in trading the move after the news.

For example, with the release of the dividend for Northrop Grumman being raise by 10% we went ahead and purchased an out of the Money call for NOC on the weekly time frame and as they price move up over 2% on Monday our option reciprocated and move up roughly about 34% in growth.

I was not aware of Northrop Grumman having released the news about their dividend price until early Monday morning. Once I read about the positive news for the company I saw the opportunity to then react to how the market was moving and move in the trend which it was going.

Understanding how to use weekly options trades on short term movements of price are excellent ways to also be able to bring in extra cashflow on stocks that you either currently own or do not own. Keep in mind you do not need to own the stock to be able to trade options on the stock.

Being able to buy and sell options allows you to be able to play these fast moving companies such as NOC without having to take the risk of investing $306 a share. The options purchase today were bought for as low as $.30 a contract. Understanding various way to be able to bring in income on a more consecutive basis will greatly benefit the overall gains that could be potentially made.

I highly personally recommend one understand the how to react to fundamental news. Becoming an efficient trader involves being able to trade not just the technical on the chart but also the fundamentals at play in the market as well. There are various resources which teach how to do this effectively and you can gain access to them by clicking on the box below.

The world of investing becomes less fearful the more we educate ourselves. Understanding the many avenues for generating income through the market are just some of the few key tools to being well equipped to being able to make profits in any situation. We can see here with Northrop Grumman over the last few weeks massive volatility. We have been able to look at the various ways of generating income on the same stock.

One of the ways is through the dividend which is a set amount to be paid out to shareholders decided by the board of the directors on a quarterly or monthly basis. When looking for stocks to buy and hold it is beneficial to identify if they pay out a dividend to be able to create cashflow when holding the stock for extended periods of time.

Another way we can generate income is by trading options based on the movement which is occurring currently in the market. Trying to go against the grain will just get you swamped out by the whales. It is beneficial to understand where the current is pushing and work in the same direction.

Pushing against the current will only result in experiencing incredible resistance when it comes to trading. With resistance comes frustration and losses. Having a level head and looking at the market for what is currently happening and removing personal biases and emotional trading will help bring more consistent results.

This week we are going to keep an eye out on Northop Grumman. With their presence in the market and large volume they provide for a great opportunity to be able to capitalize on various trading strategies.

What other Aviation companies have been on your radar in the market?

Are you holding on to any Northrop Grumman stocks right now?

Lets keep our eyes open for more potential trades on a weekly time frame as this next week will certainly keep traders on there toes. With that being said Happy Trading!

As a reminder I am not licensed or legally certified to provide financial advise or consultation I am simply sharing my own experiences and knowledge that I have of the financial market and how I personally am trading. Please consult a professional before making any investments as there are risk involved.

Understand that investing is not for everyone and that this website is designed to open a conversation regarding various companies and ideas about aviation related companies that are publicly traded and not to give advice or investing suggestion

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