Benefits of Share Ownership- Financial Returns

Question 1

What are the two ways shareholders can make financial returns from equities?

Answer 1

• Capital Gains
• Dividends

Question 2

How do shareholders make returns from capital gains?

Answer 2

It is the equivalent of making a profit when selling shares that have increased in value
- Investors hope their shares will increase in value over time to make a capital gain.
- Realised: Shares are sold an capital gains are cashed.

Question 3

What is capital gains tax?

Answer 3

• Paid on the profit made from selling an asset that has increased in value.
• 10%: Basic rate taxpayer
• 20%: Higher and additional rate taxpayer

Question 4

How do shareholders make returns with dividends?

Answer 4

On going income that a shareholder may receive as a reward for being a shareholder in a listed company
- Amount determined by the Board of Directors, paid either half-yearly or quarterly to shareholders.
- Amount is based on profits and expectations

Question 5

What are some drawbacks on dividends?

Answer 5

• Dividends are taxable under income tax: 7.5% basic rate or 32.5% higher rate
• Dividends are not always paid to shareholders

Question 6

How do you calculate dividend yield?

Answer 6

Total Dividends or Dividend per share/ Market Capitalisation or Share Price x 100