Expert: Paul Henneman - 12/3/2004

Question
I want to know the various types of returns that
could follow an investment in company shares,
whether it is possible to sell shares back to the
parent company at a time of my choosing and how
long-on average-it would take to get back in
dividend payments the exact amount spent in
acquireing the shares?

Answer
Steve,
  Thank you for your question!
  Unfortunately I would need some more information before your question could be fully answered. But some general information: If you are referring to the outright purchase of company shares of a company that is publicly traded, then yes you could sell the shares at any time. But not nessessarily back to the company, you could sell the shares to any interested individual. The US markets provide the forum for this, if the company is publicly listed on one of the major exchanges it would be relatively easy for you to buy then sell shares as needed.
  Of course the types of returns you could see depend upon how well the company does. If the company grows and is increasingly profitable you can earn strong returns by your stock increasing in value. But the opposite can also happen, and often does.
  However, if the company is private with no listing on the US markets, then it will be difficult to sell the shares. You will have to find an interested investor, or sell them back to the company. There may be an agreement as part of the sale that the company must buy them back when you are ready to sell, but this is rare. Usually it is up to the company to decide if they want to buy them back from you at all.
   The time it takes to get back your investment through dividends also varies greatly. It all depends upon how much dividend the company pays out to its shareholders.  Many companies pay no dividends at all, so investors make money if the company grows and their stock goes up in value. It is typically larger, very established companies (Such as Microsoft and many utility companies) that offer dividends. It is commonly a few percent each year, so it would take many, many years for an average divident payout to cover your initial investment. But again this is very general, each case is different depending upon what the dividend payout is compared to the stock price.  To explain this a bit better for you,  I found this definition in 'Barron's Dictionary of Finance and Investment Terms' on page 156:

"distribution of earnings to shareholders, prorated by class of security and paid in the form of money, stock, scrip, or, rarely, company products or property.  The amount is decided by the board of directors and is usually paid quarterly. Dividends must be declared as income in the year they are received."

As per the above definition, the dividend payout can change over time, and is based on the company's earnings. If the company does well, the actual payout is higher, and vice versa. Therefore the changing nature of the dividend makes it more difficult to answer how long it would take to pay off the investment. If the company is not profitable, then even if a dividend is offered there may be no payout.
I hope this helps! Please do not hesitate to follow up with me if I can be of any further service.

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