Expert: Paul Henneman - 3/7/2010

Question
I know that you can sell your stocks for profit if the price goes up, I also know that you can receive dividends on a stock. When receiving dividends, how is profit made? Does the company eventually pay out more dividends than what the investor bought the stock for? And to what end, can dividends be infinitely paid out with high possible returns, or is there a cap? Also, if dividends eventually make your investment into a profit, can you still sell you stock and profit again? How does this all work? If you have time for one more, If there is no buyers when you are trying to sell, does that mean that you can't sell it? Or does the company buy it back from you? Thank you a lot.

Answer
Thank you for your questions!
These are really large questions to understand fully, requiring more space than I have here to answer.  I do urge you to buy a copy of "Investing for Dummies", which addresses these things. It is available in most major bookstores, and on amazon.
Some brief answers:
Some publicly traded companies pay out dividends. This is simply a payment to each shareholder, based on the number of shares you own. It is up to the company to decide to pay dividends. Yes, dividends could be paid out indefinitely. However, if the company goes from profitable to losing money, it could stop paying dividends at any time it chooses.  There is no cap to the amount of dividends a company chooses to pay out.
Typically the companies that offer dividend payments are large, mature companies that are so big their growth is slowing down. This is a way to increase stock price, as paying out additional dividends is beneficial to investors, so more people want to buy the stock, driving the price up.  If a company does pay a dividend, that is profit for you, and if the stock price goes up, that is a second way to earn a return on your investment in that company. If the stock price goes down, your original investment will fall in value, but you will still receive the dividend payments to help offset that.
Yes, if there are no buyers for a stock it does mean you can't sell it. However, this rarely happens for most stocks traded on the major stock exchanges because there are so many firms and individuals trading so many stocks every day.  This is more of a concern for very small public companies, particularly companies that do not trade on a major exchange.
It is possible for a company to buy back stock, but typically you cannot simply contact the company and ask them to buy the stock back. This is done through the exchanges, so you would go through the normal process of selling your stock through a service.
Some of the popular online stock trading services are scottrade.com, etrade.com, tdameritrade.com.  There are many others, you can simply set up an account, put some money in there, then buy and sell stocks very easily.
But be careful! It is difficult to buy and sell the right stocks to make money, and very easy to make the wrong decisions and lose money instead of earn it. I strongly urge you to do a great deal of reading and research before you consider buying any stocks, the book I mention above "Investing For Dummies" is a great place to start.

I hope that this helps. Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com