Class A vs Class B vs Class C Shares, Explained

Class A vs Class B vs Class C Shares, Explained

Broadly speaking, Class A, Class B, and Class C shares are different categories of company that have different voting rights and different levels of access to distributions and dividends. Companies may use these tiers so that certain key shareholders, such as founders or executives, have more voting power than ordinary shareholders. These shareholders also may have priority on the company’s profits and assets, and may have different access to dividends.

Not all companies have alternate stock classes. And what can make share categories even more complicated is that while the classifications are common, each company can define their stock classes, meaning that they can vary from company to company. That makes it even more important for investors to know exactly what they’re getting when they purchase a certain type of stock. Understanding how different share classes typically differ can help when making investment decisions or analyzing business news.

Key Points

•   Class A, Class B, and Class C shares are different categories of company stock with varying voting rights and access to dividends.

•   Companies may use different share classes to give certain shareholders more voting power and priority on profits.

•   Share classes can vary from company to company, making it important for investors to understand the specific terms and differences.

•   Class A shares generally have more voting power and higher priority for dividends, while Class B shares are common shares with no preferential treatment.

•   Class C shares can refer to shares given to employees or alternate share classes available to public investors, with varying restrictions and voting rights.

Why Companies Have Different Types of Stock Shares

When a company goes public, they are selling portions of their company, known as stocks, to shareholders.

Shareholders own a portion of the company’s assets and profits and have a say in how the company is governed. To mitigate risk and retain majority control of the company, a company can restrict the amount of stock they sell and retain majority ownership in the company. Or they can create different shareholder classes with different rights.

By creating multiple shareholder classes when they go public, a company can ensure that executives maintain control of the company and have more influence over business decisions. For example, while ordinary shareholders, or Class B shareholders, may have one vote per share owned, individuals with executive shares, or Class A shares, may have 100 votes per share owned. Executives also may get first priority of profits, which can be important in the case of an acquisition or closure, where there is only a finite amount of profit.

Different stock classes can also reward early investors. For example, some companies may designate Class A investors as those who invested with the company prior to a certain time period, such as a merger. These investors may have more votes per share and rights to dividends than Class B investors. A company’s charter, perspective, and bylaws should outline the differences between the classes.

Class differentiation has become more critical in creating a portfolio in recent years because investors have access to different classes in a way they may not have had access in the past. For example, mutual funds frequently divide their shares into A, B, and C class shares based on the type of investor they want to attract.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

The Different Types of Shares

Just like there are different types of stock, there are different types of shareholders. Because different stock classes have such different terms, depending on the company, investors may use additional terminology to describe the stock they hold. This can include:

Preferred shares

Investors who buy preferred shares may not have voting rights, but may have access to a regular dividend that may not be available to shareholders of common stock.

Common shares

Sometimes called “ordinary shares,” common shares are stocks bought and measured on the market. Owners have voting rights. They may have dividends and access to profits, though they may come after other investors, such as executive shareholders and preferred shareholders have been paid.

Nonvoting shares

These are typically offered by private companies or as part of a compensation package to employees. Companies may use non voting shares so employees and former employees don’t have an outsize influence in company decision-making, or so that power remains consolidated with the executive board and outside shareholders. Some companies create a separate class of stock, Class C stock, that comes without voting rights and that may be less expensive than other classes.

Executive shares

Typically, these shares are held by founders or company executives. Their stock may have outsize voting rights and may also have restrictions on the ability to sell the shares. Executive shares usually do not trade on the public markets.

Advisory shares

Often offered to advisors or large investors of a company, these shares may have preferred rights and do not trade on public markets.
Recommended: Shares vs. Stocks: Differences to Know

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What Are Class A Shares?

While the specific attributes of Class A shares depend on the company, they generally come with more voting power and a higher priority for dividends and profit in the event of liquidation. Class A shares may be more expensive than Class B shares, or may not be available to the general public.

Many companies can have different stock tiers that trade at different prices. For instance, Company X may have Class A stock that regularly trades at hundreds of thousands of dollars while its Class B stock may trade for hundreds of dollars per share. Class B stockholders may also only have a small percentage of the vote that a Class A stockholder has. And while Class A stockholders might be able to convert their shares into Class B shares, a Class B shareholder may not be able to convert their shares into Class A shares.

Many of the tech companies that have gone public in recent years have also used a dual-share class system.

In some cases, shareholders are not allowed to trade their Class A shares, so they have a conversion that allows the owner to convert them into Class B, which they can sell or trade. Executives may also be able to sell their shares in a secondary offering, following the IPO.


💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

What Are Class B Shares?

Often companies refer to their Class B shares as “common shares” or “ordinary shares,” (But occasionally, companies flip the definition and have Class A shares designated as common shares and Class B shares as founder and executive shares). Investors can buy and sell common shares on a public stock exchange, where, typically, one share equals one vote. Class B shares carry no preferential treatment when it comes to dividing profits or dividends.

What Are Class C Shares?

Some companies also offer Class C shares, which they may give to employees as part of their compensation package. These shares may have specific restrictions, such as an inability to trade the shares.

Class C shares also may also refer to alternate share classes available to public investors. Often priced lower than Class A shares and with restrictions on voting rights, these shares may be more accessible to larger groups of investors. But this is not always the case. For example, Alphabet has Class A and Class C shares. Both tend to trade at similar prices.

The difference between Class C and common stock shares can be subtle. It’s important to note that these stock classes vary depending on the company. So doing research and understanding exactly which type of shares you’re buying is key before you commit to purchasing a certain class of stock.

Recommended: Investing for Beginners: Basic Strategies to Know

Class A vs Class B vs Class C Shares

What Are Dual Class Shares?

Companies that offer more than one class of shares have “dual class shares.” This is a fairly common practice, and some companies offer dual class shares that automatically convert to a common share with voting privilege at a set period of time.

These may be startups who go public through IPO and do not want public investors to have a say in the company’s decision-making. There has been controversy about companies offering two share classes of stock to the public, with detractors concerned that multiple share classes may lead to governance issues, such as reduced accountability. But others argue that multiple share classes can be an asset for a public company, leading to improved performance.

The Takeaway

Class A, Class B, and Class C shares have different voting rights and different levels of access to distributions and dividends. It can be difficult to determine which investment class is the best option for you if you’re deciding to invest in a public company that offers multiple share classes. Beyond market price, understanding how the stock will function in your overall portfolio as well as your personal investing philosophy can help guide you choose the best share class for you.

For example, investors who may be looking for shorter-term investments may choose a stock class without voting privileges. Other investors who want to be active in corporate governance may prefer share classes that come with voting rights. And some investors may be looking for stocks that provide guaranteed dividends, which may guide their decision toward one class of shares.

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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.


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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Strike Price, Explained: Definition and Examples

Strike Price: What It Means for Options Trading

In options trading, a strike price represents the price at which an investor can buy or sell a derivative contract. An option strike price can also be referred to as an exercise price or a grant price, as it comes into play when an investor is exercising the option contract they’ve purchased.

Strike price can determine the value of an option, and how much or how little an investor stands to gain by exercising option contracts. Trading options can potentially generate higher rewards for investors, though it can entail taking more risk than individual stocks. Understanding strike price and how they’re set is key to developing a successful options trading strategy.

Key Points

•   Strike price is the price at which an investor can buy or sell a derivative contract.

•   The strike price determines the value of an option and the potential gain for the investor.

•   Strike prices are set when options contracts are written and can vary for different contracts.

•   There are different types of options, including calls and puts, which have different strike prices.

•   Understanding strike price is crucial for developing a successful options trading strategy.

What Is a Strike Price?

An option is a contract that gives the owner or buyer of the option the right to buy or sell a particular security on or before a specific date, at a predetermined price. In options trading terminology, this price is called the strike price or the exercise price.

Strike prices are commonly used in derivatives trading, a derivative draws its value from an underlying investment. In the case of options contracts, this can be a stock, bond, commodity or other type of security or index.

Further, Options contracts can trade European-style or American-style. With European-style options, investors can only exercise them on their expiration date. American-style options can be exercised any time up until the expiration date. This in itself doesn’t affect strike price for options contracts.

There are two basic types of options: calls and puts. With either type of option, the strike price is set at the time the options contract is written. This strike price then determines the value of the option to the investor should they choose to move ahead with exercising the option and buying or selling the underlying asset.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Calls

A call option conveys the right to a purchaser to buy shares of an underlying stock or other security at a set strike price.

Puts

A put option conveys the right to to a purchaser to sell shares of an underlying stock or other security at a set strike price. This is one way that investors can short a stock.

Examples of Strike Price in Options Trading

Having an example to follow can make it easier to understand the concept of strike prices and how it affects the value of a security when trading option contracts. When trading options, traders must select the strike price and length of time they’ll have before exercising an option.

The following examples illustrate how strike price works when buying or selling call and put options, respectively.

Buying a Call

Call options give a purchaser the right, but not the obligation, to purchase a security at a specific price. At the same time, the seller of the call option must sell shares to the investor exercising the option at the strike price.

Let’s say you hold a call option to purchase 100 shares of XYZ stock at $50 per share. You believe the stock’s price will increase over time. This belief eventually pans out as the stock rises to $70 per share thanks to a promising quarterly earnings call. At this point, you could exercise your option to buy shares of the stock at the $50 strike price. The call option seller would have to sell those shares to you at that price.

The upside here is that you’re purchasing the stock at a discount, relative to its actual market price. You could then turn around and sell the shares you purchased for $50 each at the new higher price point of $70 each. This allows you to collect a $20 per share profit, less any trading fees owed to your brokerage and the premium you paid to purchase the call contract.

Buying a Put

Put options give purchasers the right, but not the obligation, to sell a security at a specific strike price. The seller of a put option has an obligation to buy shares from an investor who exercises the option.

So, assume that you hold a put option to sell 100 shares of XYZ stock at $50 per share. Your gut feeling is that the stock’s price is going to decline in the next few months. The stock’s price drops to $40 per share so you decide to exercise the option. This allows you to make a profit of $10 per share, since you’re selling the shares for more than their current market price.

Writing a Covered Call

A covered call is an options trading strategy that can be useful in bull and bear market environments. This strategy involves doing two things:

•   Writing a call option for a security

•   Owning an equivalent number of shares of that same security

Writing covered calls is a way to hedge your bets when trading options. You can possibly generate income by writing a call option from the premiums investors pay to purchase it. Premiums paid by a call option buyer are nonrefundable, so you get to keep these payments even if the investor decides not to exercise the option later. Covered calls can offer some downside protection if you’re waiting for the market price of the underlying asset to rise.

So, say own 100 shares of XYZ stock, currently trading at $25 per share. You write a call option for 100 shares of that same stock with a strike price of $30. You then collect the premium from the investor who buys the option.

One of two things can happen at this point: If the stock’s price remains below the $30 stock price then the option will expire worthless. You still keep the premium for writing it and you still own your shares of stock. On the other hand, if the stock’s price shoots up to $35. The investor exercises the option, meaning you have to sell them those 100 shares. You still collect the premium but you might have been better off holding onto the stock, then selling it as the price climbed.

Moneyness

Moneyness describes an option’s strike price relative to its market price. There are three ways to measure the moneyness of an option:

In the Money

Options are in the money when they have intrinsic value. A call option is in the money when the market price of the underlying security is above the strike price. A put option is in the money when the market price of the underlying security is below the strike price.

At the Money

An option is at the money when its market price and strike price are the same.

Out of the Money

An out-of-the-money option has no intrinsic value. A call option is out of the money if the market price of the underlying security is below the strike price. A put option is out of the money when the market price of the underlying security is above the strike price.

Understanding moneyness is important for deciding when to exercise options and when they may be at risk of expiring worthless.

How Is Strike Price Calculated?

The strike price of an option contract is set when the contract is written. Strike prices may be determined by the exchange they’re traded on (like the Chicago Board Options Exchange). Options contract writers may use the security’s closing price from the previous day as a baseline for determining the strike price while taking into account volatility and trading volume.

A writer can issue multiple option contracts for the same security with varying strike prices. For example, you might see five option contracts for the same stock with strike prices of $90, $92.50, $95, $97.50 and $100. This allows investors an opportunity to select varying strike prices when purchasing calls or put options for the same stock.

Note, however, that writing options in this fashion will likely result in those calls being uncovered, unless the writer owns enough shares to cover all of the options issued — that can mean incurring significant risk.

How Do You Choose a Strike Price?

When deciding which options contracts to buy, strike price is an important consideration. Stock volatility and the passage of time can affect an option’s moneyness and your potential profits or less from exercising the option.

As you compare strike prices for call or put options, consider:

•   Your personal risk tolerance

•   Where the underlying security is trading, relative to the option’s strike price

•   How long you have to exercise the option

You can also consider using various options trading strategies to manage risk. That includes covered calls as well as long calls, long puts, short puts and married puts. Learning more about how to trade options can help you apply these strategies to maximize returns while curbing the potential for losses.

What Happens When an Option Hits the Strike Price?

When an option hits the strike price it’s at the money. This means it has no intrinsic value as the strike price and market price are the same. There’s no incentive for an investor to exercise an option that’s at the money as there’s nothing to be gained from either a call or put option. In this scenario, the option will expire worthless.

If you’re the purchaser of an option that expires worthless, you would lose the money you paid for the premium to buy the contract. If you’re the writer of the option you would profit from the premium charged to the contract buyer.


💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

The Takeaway

Strike price is a critical concept for investors to know, especially if they’re trading or otherwise dealing with options as a part of their investing strategy. The strike price simply refers to the price that a purchaser can buy or sell an underlying security. Again, options can be fairly high-level, and may not be appropriate for all investors.

If you’re interested in options trading, getting started isn’t complicated. You simply need to choose an online brokerage that offers options trading. When comparing brokerages be sure to check the fees you’ll pay to trade options.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.


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SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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How to Calculate Rate of Return

Rate of Return (RoR): Formula and Calculation Examples

What Is Rate of Return?

Rate of return is a measure of an investment’s gain or loss, expressed as a percentage of its initial value, over a given period of time.

If calculated correctly, your rate of return will be expressed as a percentage of your initial investment. Positive rate of return calculations indicate a net gain on your investment, while negative results will indicate a loss.

Don’t confuse this with the expected rate of return, which forecasts your expected returns using probability and historical performance.

When using the rate of return formula, your chosen time period is referred to as your “holding period.” Regardless of whether your holding period lasts days, months, or even years. It’s important that you keep the time periods consistent when comparing investment performance.

Key Points

•   Rate of return is a measure of an investment’s gain or loss expressed as a percentage of its initial value over a given period of time.

•   The rate of return formula compares the difference between the current and initial value of an investment and expresses it as a percentage.

•   The formula for calculating rate of return is R = [(Ve Vb) / Vb] x 100, where Ve is the end of period value and Vb is the beginning of period value.

•   Rate of return calculations should be consistent in terms of the holding period to accurately compare investment performance.

•   The rate of return calculation has limitations, such as ignoring the time value of money and timing of cash flows, which can be addressed by using alternate measures like IRR and annualized rate of return.

How to Calculate Rate of Return

You can calculate the rate of return on your investment by comparing the difference between its current value and its initial value, and then dividing the result by its initial value.

Multiplying the result of that rate of return formula by 100 will net you your rate of return as a percentage. You’ll know whether you made money on your investment depending on whether your result comes in as positive or negative.

We’ll do a detailed run through of how to calculate your rate of return, what you should include in the calculation, and what the resulting value means.

Rate of Return Formula

The standard rate of return formula can be represented as follows:

R = [ ( Ve – Vb ) / Vb ] x 100

Where,

R = Rate of return

Ve = End of period value

Vb = Beginning of period value

The aforementioned formula can be applied to any holding period to find your rate of return “R” over that timespan.

“Ve,” your end of period value, should represent the value of your investment, including any interest or dividends earned over your holding period.

Finally “Vb” should represent the value of your initial investment. It will be used as the relative basis on which your investment returns are calculated.

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Example of Calculating Rate of Return

To help you understand how to calculate the rate of return, we’ll walk you through an example. The formula is restated below to help you follow along.

R = [ ( Ve – Vb ) / Vb ] x 100

Let’s say an investor buys an investment for $125 a share which pays no dividends. This $125 investment will be your beginning of period value (“Vb”).

After one year, the value of the investment rises to $150 and the investor chooses to sell it. Given that $150 represents the value of the investment at the end of the holding period, $150 will be your end of period value (“Ve”).

To calculate the rate of return, enter the values for Vb and Ve into the rate of return formula. With the correct values in place, your equation should look like this:

R = [ ( $150 – $125 ) / $125 ] X 100

Solving out this formula using order of operations, your calculations should proceed as follows:

R = [ $25 / $125 ] X 100

R = 0.2 X 100

R = 20%

If done correctly, the formula should calculate a one year rate of return of 20%, based on the beginning and end of period values provided.

How to Calculate Rate of Return Using Excel

Calculating the rate of return in Excel simply requires you to enter the right inputs in a few cells; then tie those cells together using a few simple equations.

Excel is a powerful purpose-built application designed to crunch numbers and is a go-to-standard when making investment calculations.

While you can enter these inputs anywhere you want on the spreadsheet, we’ll walk you through an example to get you started. We’ve also restated the rate of return formula here to help you follow along.

R = [ ( Ve – Vb ) / Vb ] x 100

After opening a blank excel spreadsheet on your desktop, start by entering the beginning and of period investment values using the following inputs in the corresponding cells.

Cell B2: End of period value of investment (“Ve”)

Cell B3: Beginning of period value of investment (“Vb”)

It’s a good idea to enter a description of what each cell represents in the corresponding column “A” cells, to help you remember what each value means.

Now that we have all the necessary inputs for our formula, it’s time to tie them together. We’ve broken this step into several cells for ease of understanding.

Cell B4: Type in “=B2-B3”

This cell calculates the difference in value between your end of period (“Ve”) and beginning of period (“Vb”) investment.

Cell B5: Type in “=B4/B3”

This cell will divide the difference in value (Cell B5), by the beginning of period value (Cell B3), to obtain a decimal measure of your rate of return.

Cell B6: Type in “=B5*100”

Multiplying the decimal metric from cell B5 by 100 will calculate your resulting rate of return as a percentage.

If done correctly, cell B6 should show your rate of return.

Note: For more advanced Excel users, the same result can be obtained by entering: “=(B2-B3)/B3*100” within a single cell. You can try this in any blank cell to double check your work.

Considerations When Using Rate of Return

The main advantages of the rate of return calculation is that it’s simple and easy to calculate. It gives you a straightforward method to measure the profitability of an investment over any time period.

However, its simplicity does result in some shortcomings, particularly when it comes to more complex investments with numerous cash flows. We dive into these limitations below.

💡 Recommended: What Is a Good Rate of Return?

What are the Limitations of Simple Rate of Return?

The main limitations of the simple rate of return calculation are that it ignores the time value of money and timing of cash flows.

The time value of money is an important concept when it comes to finance, as it explains that money today is always worth more than the same sum of money paid in the future. This is due to the inherent earnings potential of cash held now.

In tandem with the concept above, the simple rate of return calculation also fails to account for the timing of cash flows.

Cash flows are particularly important when dealing with more complex portfolios or investments that might have multiple reinvestment periods over time or multiple dividend payouts.

The simple rate of return calculation, in some ways, oversimplifies the rate of return into a simple accounting measure over an arbitrary amount of time. To address these shortcomings, professionals typically use alternate measures like internal rate of rate (IRR) and annualized rate of return.

Annualized Rate of Return

The annualized rate of return is a slightly more complicated formula that solves the compatibility issues of the simple rate of return calculation by standardizing all calculations over an annual period.

Formula

The annualized rate of return formula can be exhibited as follows.

Ra = ( Ve / Vb ) 1 / n – 1 X 100

Where,

Ra = Annualized Rate of Return

Ve = End of period value

Vb = Beginning of period value

n = number of years in holding period

Annualized rate of return (Ra) standardizes your rate of return on an annual basis; this allows you to make fair comparisons with other annualized performance figures.

“Ve,” your end of period value, represents the value of your investment at the end of the holding period, including any interest or dividends earned.

“Vb” represents the value of your initial investment.

Other Types of Return Formulas

There are a multitude of other return metrics that can help you evaluate performance.

While the calculations for these metrics fall outside the scope of this reading, we touch on some of the most commonly used ones and why they’re used.

•   Internal Rate of Return (IRR): This represents the expected annual compound growth rate of a specific investment and is usually used to help determine whether an investment is worthwhile.

•   Return on Invested Capital (ROIC): Measures a firm’s profitability in relation to the total debt and equity invested by stakeholders.

•   Return on Equity (ROE): Measures a firm’s net income in relation to the total value of its shareholder’s equity.

How Investors Can Use Rate of Return

Retail investors, institutional investors, and even corporate decision makers use the rate of return to gauge the performance of their investments over time.

It’s useful when compared against a benchmark index, return expectations, or other investment options to gauge how your investment performed on a relative basis.

When comparing investment returns, it’s important to make sure you’re making fair comparisons to ensure you’re making apples-to-apples comparisons.

For example, the S&P 500 might not serve as a fair benchmark for a portfolio invested 100% in international equities, as these are substantially different investment types.

Benchmark comparisons give meaning to your rate of return and help you evaluate whether you’re outperforming on a relative basis.

The Takeaway

Knowing how to calculate your rate of return gives you a useful tool for evaluating your investments’ performance. The best part about the rate of return calculation is that it can be done over almost any timespan, provided the returns you’re trying to compare have the same holding period.

It’s easy to calculate rate of return by hand, or by using an online spreadsheet. The same is true for annualized rate of return — which helps to standardize return rates over longer periods. Those are fairly simple ways to gauge investment returns, but there are a number of other metrics that help you assess and compare investment returns, so be sure to use the tool that aligns best with what you need to know.

If you want to start investing or are looking for ways to improve on your investments, SoFi’s online investing app is a great way for you to start building up your portfolio. SoFi’s award-winning app is secure, convenient, and easy to use.

SoFi invest gives you access to a wide array of stocks and ETFs. You can even gain access to IPO shares, and automated investing strategies, all at a competitive cost, all from the convenience of your phone or laptop.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.


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SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Investment Opportunities in 2023

Investment opportunities are different ways to put your money to work, and they can include any number of things, such as buying assets and waiting for them to appreciate, or investing in real estate or a business opportunity.

There are varying degrees of risks and potential rewards with each option, but if you’re looking to put your money to work this year, you may want to consider a range of ideas.

Every idea has to be vetted, of course, and it’s important to do your due diligence before investing. Only you can decide which opportunities make sense, given your goals and long term plans.

Key Points

•   Investment opportunities include buying assets, investing in real estate, or investing in a business opportunity.

•   Each opportunity comes with varying degrees of risk and potential rewards.

•   Examples of investment opportunities include bonds, real estate or REITs, ETFs and passive investing, automated investing, and investing in startups.

•   Buying precious metals like gold and silver are also potential investment opportunities.

•   Investors should do their due diligence and consider their goals and long-term plans before investing.

What Is an Investment Opportunity?

An investment opportunity is exactly what it sounds like: It’s an opportunity, but not a guarantee, that you can put your money into a stock, a mutual fund, a new business, a type of cryptocurrency, that may offer the potential for growth.

While there are countless options for investors, investing typically involves using a brokerage account or investing platform to buy securities. There is a wide range of financial products on the market, and a good percentage of them can be purchased using a brokerage account.

Investments can be volatile, or at least subject to change. Virtually all investments rise and fall in value. Some are more reactive to economic issues or global politics. For that reason, it’s often useful for investors to evaluate the opportunities that may be trending in a certain year, bearing in mind all the relevant risks and investment costs.

6 Investment Opportunities to Potentially Build Wealth

7 Potential Ways to Invest and Build Wealth

1. Bonds and Bond Funds

One common conservative investment strategy is to seek a small-but-safe return from bonds.

Governments, municipalities, and companies issue bonds to investors who lend them money for a set period of time. In exchange, the issuer pays interest over the life of the loan, and returns the principal when the bond “matures.” Individuals can buy them on bond markets or on exchanges.

Upon maturity, the bond-holder gets their original investment (known as the principal) back in full. In other words, a bond is a loan, with the investor loaning another party money, in exchange for interest payments for a set period of time.

Different Types of Bonds

There are many different types of bonds. The most common, and generally considered to be the lowest-risk category of bonds might be the U.S. Treasury bonds, typically called treasuries.

The Treasury regularly auctions off both short-term and long-term Treasury bonds and notes. These bonds are, generally, thought to be one of the safest investments on the market, as they’re guaranteed by the U.S. government. The only way for investors to lose their entire investment would be for the U.S. government to become insolvent, which has never occurred.

Governments are not the only entities that issue bonds. Corporations can also raise money by offering corporate bonds. These types of bonds tend to be riskier, but they often pay a higher rate of interest (known as the yield).

A bond’s price is the inverse of its yield. This means that as the price of a bond falls, its yield goes up (and vice versa).

For new investors, one of the simpler ways to gain exposure to bonds might be through various exchange-traded funds (ETFs) that are invested in bonds.

Other ETFs may include some bonds as part of a broader bundle of securities.

💡 Recommended: What Is Capital Appreciation?

2. Real Estate or REITs

Real estate is the largest asset class in the world, with a market cap well into the hundreds of trillions of dollars.

When thinking about investing in real estate, residential properties may be one of the first things that comes to mind, such as buying a single family home. But owning property, like a home, can come with an array of responsibilities, liabilities, and expenses. In that way, it’s different from owning a stock or bond.

Annual property taxes, maintenance and upkeep, and paying back mortgage interest can add to the cost of treating a home as an investment. It’s also worth remembering that residential properties can appreciate or depreciate in value, too.

Other real-estate investment options involve owning multi-family rental properties (like apartment buildings or duplexes), commercial properties like shopping malls, or office buildings. These tend to require large initial investments, but those who own them could reap significant returns from rental income. (Naturally, few investments guarantee returns and rental demands and pricing can change over time).

For people with smaller amounts of capital, investing in physical real estate might not be a realistic or desirable option. Fortunately for these investors, some investment opportunities can provide exposure to real estate without the hassle and liability of owning physical property. One common way to do this is through Real Estate Investment Trusts, or REITs.

Like other investments, there are pros and cons of REITs, but companies can be classified as REITs if they derive at least 75% of their income from the operation, maintenance, or mortgaging of real estate. Additionally, 75% of a REITs assets must also be held in the form of real property or loans directly tied to them.

There are many different types of REITs. Some examples of the types of properties that different REITs might specialize in include:

•   Residential real estate

•   Data centers

•   Commercial real estate

•   Health care

Shares of a REIT can be purchased and held in a brokerage account, just like a stock or ETF. To buy some, it’s often as simple as looking up a specific REIT’s ticker symbol.

REITs are popular among passive-income investors, as they tend to have high dividend yields because they are required by law to pass on 90% of their amount of their income to shareholders.

Historically, REITs have often provided better returns than fixed-income assets like bonds, although REITs do tend to be higher-risk investments.

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*Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

3. ETFs and Passive Investing

Passive investing, which refers to exchange-traded funds (ETFs), mutual funds, and other instruments that track an index and do not have an active manager, have become increasingly popular over the years.

•   Weighing the merits of passive vs. active investing is an ongoing debate, with strong advocates on both sides. In recent years, assets held in passive instruments have outpaced active funds.

Passive investing tends to be lower cost compared with active investing, and over time these strategies tend to do well.

•   An ETF is a security that usually tracks a specific industry or index by investing in a number of stocks or other financial instruments.

ETFs are commonly referred to as one type of passive investing, because most ETFs track an index. Some ETFs are actively managed, but most are not.

These days, there are ETFs for just about everything — no matter your investing goal, interest area, or industry you wish you invest in. Small-cap stocks, large-cap stocks, international stocks, short-term bonds, long-term bonds, corporate bonds, and more.

Some potential advantages of ETFs include lower costs and built-in diversification. Rather than having to pick and choose different stocks, investors can choose shares of a single ETF to buy, gaining some level of ownership in the fund’s underlying assets.

Thus investing in ETFs could make the process of buying into different investments easier, while potentially increasing portfolio diversification (i.e., investing in distinct types of assets in order to manage risk).

4. Automated Investing

Another form of investing involves automated portfolios called robo advisors, as well as target-date mutual funds, which are often used in retirement planning.

An Intro to Robo Advisors

Typically, a robo advisor is an online investment service that provides you with a questionnaire so you can input your preferences: e.g. your financial goals, your personal risk tolerance, and time horizon. Using these parameters, as well as investing best practices, the robo advisor employs a sophisticated algorithm to recommend a portfolio that suits your goals.

These automated portfolios are pre-set, and they can tilt toward an aggressive allocation or a conservative one, or something in between. They’re typically comprised of low-cost exchange-traded funds (ETFs). These online portfolios are designed to rebalance over time, using technology and artificial intelligence to do so.

You can use a robo investing as you would any account — for retirement, as a taxable investment account, or even for your emergency fund — and you typically invest using automatic deposits or contributions.

An Intro to Target-Date Funds

For investors who would rather “set it and forget it” than have to choose securities and manage investments over time, robo advisors could be one automated investment option. Target-date mutual funds, which are a type of mutual fund often used for retirement planning and college savings, also use technology to automate a certain asset allocation over time.

By starting out with a more aggressive allocation and slowly dialing back as years pass, the fund’s underlying portfolio may be able to deliver growth while minimizing risk. This ready-made type of fund can be appealing to those who have a big goal (like retirement or saving for college), and who don’t want the uncertainty or potential risk of managing their money on their own.

5. Gold and Silver

Investing in precious metals is another way to put your money to work.

Gold is one of the most valued commodities. For thousands of years, gold has been prized because it is scarce, difficult to obtain, has many practical uses, and does not rust, tarnish, or erode.

Silver has historically held a secondary role to gold, and today, serves more of an industrial role. For those looking to invest in physical precious metals, silver will be an affordable option.

Buying physical gold or bullion (which comes in coins and bars) isn’t the only way to invest in gold and silver. There are many related securities that allow investors to gain exposure to precious metals. There are ETFs that tend to track the prices of gold and silver, respectively. Other ETFs provide an easy vehicle for investing in gold and silver mining stocks. So, there are some different ways to invest in the field.

Companies that explore for and mine silver and gold tend to see their share prices increase in tandem with prices for the physical metals. But historically, mining stocks have outperformed simply holding metals by a factor of about 4-to-1 on average.

Gold, silver, and related securities are sometimes considered to be “safe havens,” meaning most investors perceive them as low risk. This asset class tends to perform well during times of crisis (and conversely tends to drop when the economy is going well), but past trends don’t guarantee that gold will perform one way or the other.

6. Investing in Startups

While gold is often considered to be one of the safer investments, startup investing is often considered to be one of the riskiest.

Whereas gold is a real asset almost certain to retain most or all of its value, startup investments are effectively bets on the potential of a new company, and that company might fail; in fact, there’s a good chance that it will. But it’s the high-risk, high-reward and potentially huge returns from startup investing that make it attractive to investors.

Imagine buying a little piece of a tech company when those companies were still in their infancy. When held throughout the years, an investment like that could grow enormously in value.

Angel investing and venture capital are two common ways that startups raise capital. They are both types of equity financing, whereby a business funds or expands its operations by offering investors a stake of ownership in the company. If the company does well, investors stand to profit. Because standard business loans tend to require some kind of assets as collateral (which newer companies, that might be information-based, likely do not have), raising funds in this way is sometimes the only solution startups have.

Venture capital is often associated with the tech industry, due to the large number of entrepreneurs in the industry who have turned to venture capital funds to start their businesses. This type of fund targets new companies and aims to help them grow to the next level.

Angel investing is similar to venture capital, but even riskier. An angel investor might be an individual who’s willing to help fund an otherwise struggling company.

Before running off to look for small companies to invest in, know that startup investing requires good business acumen, an eye for promising ideas, and high risk tolerance. In some cases, to, you may need to qualify as an “accredited investor” to invest in startups. Do a little homework, accordingly!

Average Rate of Return for the Investment Opportunities

Each of the aforementioned investment opportunities comes with its own set of caveats. For instance, it’s pretty much impossible to guess what types of returns you’d see from investing in ETFs without knowing the specific ETFs you’re investing in. The same holds true for cryptocurrencies, and other assets.

But for some of the previously discussed asset classes, there are some historical returns for different asset classes over the past decade, as of August 2022.

•   U.S. Stock Market: 13.8%

•   Bonds: 1.6%

•   Real Estate: 8.8%

•   Gold: 0.8%

Importance of Finding Good Investing Opportunities

There is no requirement to invest one’s money. But leaving your cash…in cash…can also be risky. No one wants their wealth eroded by inflation.

Though the global economy hadn’t seen serious inflation on a wide scale for decades until 2022, today’s rising prices effectively mean that the value of every dollar you own is diminished as time goes on.

As such, finding investment opportunities that present chances for your money to grow faster than the rate of inflation, while weighing all the appropriate risks, is a powerful incentive.

After all, some investments rise while others fall, and things change. That’s why investors need to be on the lookout for new and different opportunities.

The Takeaway

The investment opportunities described above are just some potential points of entry for investors in 2023. Investors can look to the stock, bond, or crypto markets for new ways to put their money to work — or consider active strategies vs. passive (i.e. index) strategies. They can look at commodities, like precious metals, or automated portfolios.

All these investment opportunities come with their own set of potential risks and rewards. There are no guarantees that choosing X over Y will increase your investment returns. It’s up to each investor to weigh these options, especially in light of current economic trends, such as inflation and rising rates.

SoFi Invest® helps individuals begin investing with ease, thanks to the secure, streamlined SoFi platform. When you set up an online investing account, you can choose from stocks, ETFs, and more — and you can get started with just a few dollars.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What is the best investment opportunity right now?

The best investment opportunity at any given time will depend on the specific investor, and their individual goals, time horizon, and risk tolerance. Opportunities rise and fall over time, in reaction to economic and market trends, so investors should consider their personal preferences to determine what’s best for them.

What is the safest investment with the highest return?

Historically speaking, investing in a stock market index like the S&P 500 earns an average annual return of about 10% over time. But that’s just an average, and there are years when the market is down considerably. As such, it may not be “safe,” but over time, the market tends to bounce back.

Why are investment opportunities important?

Investing your money in the right ways can help it grow, and keep ahead of inflation. And because there are no guarantees for any one asset class or investment type, it helps to know where the opportunities lie so you can balance and/or diversify your own assets according to your own goals and time horizon.


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.


Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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What Is Dividend Yield?

Key Points

•   Dividend yield is the ratio of a stock’s annual dividend payments to its current stock price, expressed as a percentage.

•   Dividend yield can help investors compare companies and determine which ones may be better investments for generating income.

•   Dividend yield fluctuates based on changes in stock price, so a higher yield doesn’t always indicate better value.

•   Calculating dividend yield involves dividing the annual dividend per share by the stock’s current price.

•   Other factors to consider when evaluating dividend stocks include dividend growth history, dividend payout ratio, company debt, and overall financial health.

What Is Dividend Yield?

A stock’s dividend yield is how much the company annually pays out in dividends to shareholders, relative to its stock price. The dividend yield is a ratio (dividend/price) expressed as a percentage, and is distinct from the dividend itself.

Dividend payments are expressed as a dollar amount, and supplement the return a stock produces over the course of a year. For an investor interested in total return, learning how to calculate dividend yield for different companies can help to decide which company may be a better investment.

But bear in mind that a stock’s dividend yield will tend to fluctuate because it’s based on the stock’s price, which rises and falls. That’s why a higher dividend yield may not be a sign of better value.

Keep reading to understand how to calculate dividend yield, and how to use it as a metric in your investment choices.

How Does Dividend Yield Differ From Dividends?

•   Dividends are a portion of a company’s earnings paid to investors and expressed as a dollar amount. Dividends are typically paid out each quarter (although semi-annual and monthly payouts are common). Not all companies pay dividends.

•   Dividend yield refers to a stock’s annual dividend payments divided by the stock’s current price, and expressed as a percentage. Dividend yield is one way of assessing a company’s earning potential.

How to Calculate Dividend Yield

Calculating the dividend yield of an investment is useful for investors who want to compare companies and the dividends they pay. For investors looking for investments to help supplement their cash flow, or even to possibly live off dividend income, a higher dividend yield on a stock would be more attractive than a lower one.

What Is the Dividend Yield Formula?

The dividend yield formula is more of a basic calculation than a formula: Dividend yield is calculated by taking the annual dividend paid per share, and dividing it by the stock’s current price:

Annual dividend / stock price = Dividend yield (%)

Dividend Yield Formula

How to Calculate Annual Dividends

Investors can calculate the annual dividend of a given company by looking at its annual report, or its quarterly report, finding the dividend payout per quarter, and multiplying that number by four. For a stock with fluctuating dividend payments, it may make sense to take the four most recent quarterly dividends to arrive at the trailing annual dividend.

It’s important to consider how often dividends are paid out. If dividends are paid monthly vs. quarterly, you want to add up the last 12 months of dividends.

This is especially important because some companies pay uneven dividends, with the higher payouts toward the end of the year, for example. So you wouldn’t want to simply add up the last few dividend payments without checking to make sure the total represents an accurate annual dividend amount.

Example of Dividend Yield

If Company A’s stock trades at $70 today, and the company’s annual dividend is $2 per share, the dividend yield is 2.85% ($2 / $70 = 0.0285).

Compare that to Company B, which is trading at $40, also with an annual dividend of $2 per share. The dividend yield of Company B would be 5% ($2 / $40 = 0.05).

In theory, the higher yield of Company B may look more appealing. But investors can’t determine a stock’s worth by yield alone.

Dividend Yield: Pros and Cons

Pros

Cons

Can help with company valuation. Dividend yield can indicate a more established, but slower-growing company.
May indicate how much income investors can expect. Higher yield may mask deeper problems.
Yield doesn’t tell investors the type of dividend (ordinary vs. qualified), which can impact taxes.

For investors, there are some advantages and disadvantages to using dividend yield as a metric that helps inform investment choices.

Pros

•   From a valuation perspective, dividend yield can be a useful point of comparison. If a company’s dividend yield is substantially different from its industry peers, or from the company’s own typical levels, that can be an indicator of whether the company is trading at the right valuation.

•   For many investors, the primary reason to invest in dividend stocks is for income. In that respect, dividend yield can be an important metric. But dividend yield can change as the underlying stock price changes. So when using dividend yield as a way to evaluate income, it’s important to be aware of company fundamentals that provide assurance as to company stability and consistency of the dividend payout.

Cons

•   Sometimes a higher dividend yield can indicate slower growth. Companies with higher dividends are often larger, more established businesses. But that could also mean that dividend-generous companies are not growing very quickly because they’re not reinvesting their earnings.

   Smaller companies with aggressive growth targets are less likely to offer dividends, but rather spend their excess capital on expansion. Thus, investors focused solely on dividend income could miss out on some faster-growing opportunities.

•   A high dividend yield could indicate a troubled company. Because of how dividend yield is calculated, the yield is higher as the stock price falls, so it’s important to evaluate whether there has been a downward price trend. Often, when a company is in trouble, one of the first things it is likely to reduce or eliminate is that dividend.

•   Investors need to look beyond yield to the type of dividend they might get. And investor might be getting high dividend payouts, but if they’re ordinary dividends vs. qualified dividends they’ll be taxed at a higher rate. Ordinary dividends are taxed as income; qualified dividends are taxed at the lower capital gains rate, which typically ranges from 0% to 20%. If you have tax questions about your investments, be sure to consult with a tax professional.

The Difference Between Dividend Yield and Dividend Rate

As noted earlier, a dividend is a way for a company to distribute some of its earnings among shareholders. Dividends can be paid monthly, quarterly, semi-annually, or even annually (although quarterly payouts tend to be common in the U.S.). Dividends are expressed as dollar amounts. The dividend rate is the annual amount of the company’s dividend per share.

A company that pays $1 per share, quarterly, has an annual dividend rate of $4 per share.

The difference between this straight-up dollar amount and a company’s dividend yield is that the latter is a ratio. The dividend yield is the company’s annual dividend divided by the current stock price, and expressed as a percentage.

What Is a Good Dividend Yield?

Two companies with the same high yields are not created equally. While dividend yield is an important number for investors to know when determining the annual cash flow they can expect from their investments, there are deeper indicators that investors may want to investigate to see if a dividend-paying stock will continue to pay in the future.

A History of Dividend Growth

When researching dividend stocks, one place to start is by asking if the stock has a history of dividend growth. A regularly increasing dividend is an indication of earnings growth and typically a good indicator of a company’s overall financial health.

The Dividend Aristocracy

There is a group of S&P 500 stocks called Dividend Aristocrats, which have increased the dividends they pay for at least 25 consecutive years. Every year the list changes, as companies raise and lower their dividends.

Currently, there are 65 companies that meet the basic criteria of increasing their dividend for a quarter century straight. They include big names in energy, industrial production, real estate, defense contractors, and more. For investors looking for steady dividends, this list may be a good place to start.

Dividend Payout Ratio (DPR)

Investors can calculate the dividend payout ratio by dividing the total dividends paid in a year by the company’s net income. By looking at this ratio over a period of years, investors can learn to differentiate among the dividend stocks in their portfolios.

A company with a relatively low DPR is paying dividends, while still investing heavily in the growth of its business. If a company’s DPR is rising, that’s a sign the company’s leadership likely sees more value in rewarding shareholders than in expanding. If its DPR is shrinking, it’s a sign that management sees an abundance of new opportunities abounding. In extreme cases, where a company’s DPR is 100% or higher, it’s unlikely that the company will be around for much longer.

Other Indicators of Company Health

Other factors to consider include the company’s debt load, credit rating, and the cash it keeps on hand to manage unexpected shocks. And as with every equity investment, it’s important to look at the company’s competitive position in its sector, the growth prospects of that sector as a whole, and how it fits into an investor’s overall plan. Those factors will ultimately determine the company’s ability to continue paying its dividend.

The Takeaway

Dividend yield is a simple calculation: You divide the annual dividend paid per share by the stock’s current price. Dividend yield is expressed as a percentage, versus the dividend (or dividend rate) which is given as a dollar amount.

A company that pays a $1 per share dividend, has a dividend rate of $4 per year. If the share price is $100/share, the dividend yield is 4% ($4 / $100 = 0.04).

The dividend yield formula can be a valuable tool for investors, and not just ones who are seeking cash flow from their investments. Dividend yield can help assess a company’s valuation relative to its peers, but there are other factors to consider when researching stocks that pay out dividends. A history of dividend growth and a good dividend payout ratio (DPR), as well as the company’s debt load, cash on hand, and credit rating can help form an overall picture of a company’s health and probability of paying out higher dividends in the future.

If you’re ready to invest in dividend-paying stocks, consider opening a brokerage account with SoFi Invest. You can trade stocks, exchange-traded funds (ETFs), and IPO shares, — right from your phone or laptop, using SoFi’s secure online platform. SoFi doesn’t charge management fees, and SoFi members have access to complimentary financial advice from professionals. Get started today!

Find out how SoFi Invest can help further your financial goals.


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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