AboutJay Kay Expertise As a private investor for the past 40 years, I have experienced both bull and bear markets, and have lived to tell the tale. I should be able to provide you with serious, practical insights into managing stocks, bonds and mutual funds in your portfolio, along with useful information concerning most aspects of personal finance. No specific stock/bond recommendations furnished.
Expert: Jay Kay Date: 11/20/2006 Subject: Stocks and Warrants.
Question I am new to investing in the stock market. I want to know what kind of return am I expecting when I buy a particular company's stock. So far, I know of increase in stock price and dividend. But what if I invest in a good progressive company that pay a pittance as dividend and its stock price doesn't increase much in several years? Does that mean its not a good company? Is there any other form of hidden return that I don't know of that I should stay with this particular company?
What is warrant, its purpose and the benefit I'll get in owning them?
Answer It is very unlikely that "a good progressive company" will pay a "pittance" as a dividend AND not have its stock price increase significantly over several years. If you invest for income, you expect the stock's dividend to rise meaningfully over a period of time. If you invest for growth, your expectation is that the share price will rise as the company's earnings rise, even if the dividend is very small (or, for that matter, if there is no dividend at all). A stock that provides NEITHER hefty dividends nor a rising share price would not appear to be worth owning. Why continue to hold these shares when you can get dividend income, or capital gains (or both) elsewhere?
As for warrants, I'll let you look at this expansive definition from Wikipedia:
Warrant (finance)
From Wikipedia, the free encyclopedia
Warrant
A warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price, which is much higher than the stock price at time of issue. Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. Frequently, these warrants are detachable, and can be sold independently of the bond or stock. Warrants are much like call options, but the money goes to the issuer, not an option writer, and it initially has a lifespan of many years. When the warrant is exercised the company issues new shares of stock, so the number of outstanding shares increases. When a call is exercised, the owner of the call receives an existing share from an assigned call writer (except in the case of employee stock options, where new shares are created and issued by the company upon exercise).
Sometimes the issuer will try to establish a market for the warrant and to register it with a listed exchange. In this case, the price can be obtained from a broker. But oftentimes, warrants are privately held or not registered, which makes their prices less obvious. Once the warrants are in the secondary market, they can then be traded just like a stock. Warrants can be easily tracked by adding a “w” after the company’s ticker symbol to check the warrant's price.
