How to Identify the Cash Flows Available to an Investor in Stock

How to Identify the Cash Flows Available to an Investor in Stock
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Stock market investors can make money in two distinct ways. First, they profit when the share price of the stock goes up by selling that appreciated stock and realizing their gain. Second, stock market investors can enjoy a cash flow from the dividends paid by stocks. Investors who are interested in this second benefit of stock ownership need to evaluate potential investments carefully in order to find the ones with the strongest and most-secure cash flow.

Choose a number of stocks you might be interested in owning. These can be stocks of companies you admire, or companies whose products you own. Write down a list of at least 10 to 15 possible stock market investments.

Purchase a financial newspaper like the Wall Street Journal, Barrons or Investors Business Daily. Turn to the stock tables listed in the publication.

Circle the stocks you have identified in step 1. Look for the dividend yield column to determine if those stocks pay a dividend. There are companies that have a long-term record of increasing their dividends.

Divide the dividend amount by the current share price of the stock and multiply the result by 100 to get the dividend yield in percentage terms. For instance, a stock with a $1.00 dividend and a current share price of $25.00 has a dividend yield of 4 percent

Determine how many shares of each company you could afford to buy were you to make the investment. Multiply the dividend per share by the number of shares to get your annual cash flow from each stock. If you purchase 100 shares of a stock with a $5.00 per share dividend, you can expect a yearly payout of $500.

Use a tax preparation program to determine the amount of taxes you are likely to owe on the dividend income you receive. In order to determine your true cash flow, you need to take taxes into account.