How to invest in ERX

Day 882, 01:51 • Published in USA USA • by Stock Exchange

Basically, there are two paths to choose. Either you bet on the share price to rise or you invest in Companies paying good dividends. In some cases you might even be able to combine both. In this number of Stock Market News we will tell you how! But before we get into details or let you
know our favorite dividend paying stocks, lets just make a few concepts clear.

A Company has one main purpose, to generate profit for their shareholders.
When making profit, a Company can choose to reinvest them in order to grow
through new investments or upgrades. If these are done right, they will generate more
profit and higher Organization Value, thereby making the shares worth more money.
But they can also choose to pay out a certain amount as dividends. Most common is a
combination of both, companies pay dividends raging from 20-100% of profits.
Obviously, a Company paying out 70% as dividends won’t grow as fast as the one
paying 20%, on the other hand shareholders receive more cash in hand while still in
possession of their shares.

A good rule of thumb is, the lesser the percentage of profits that are paid out, the
better the share price should develop. Because the money stays in the company the
Organization Value simply grows faster. Although in eRepublik, with very few
regulations and not very many professional traders, this might not be the case.
Therefore a good advice to the long term- or beginning investor is to choose
companies with good dividends. This way, you get a part of your investment back
every once in a while. Some companies on ERX even pay as high as 20% of share
price every month, that means the whole investment is paid back to you after five
months and you won’t even have to sell your shares. Since such high dividends are
rare, share price will most likely rise and you get additional profit when finally selling
them. More about this a little later!

When choosing shares it’s always a good idea to compare the Organization Value to
the Market Capital. This is called the Cap/Org Ratio. Last issue of Stock Market News went through these concepts, but I will give a quick recap. The Organization Value is the Net Value
of all assets owned by the Company. An Organization with a Q3 Weapons Company
and no stock or raw material whatsoever have a Organization Value (or Net Value) of
95 Gold, 90 because that’s the price of starting a Q3 company and 5 because the
organization is cost 5 Gold to start and that makes 95 in total. The Market Cap
however, is the number of released shares multiplied by the price. So lets say the
same Company have 100 shares at 1 Gold each on the market, giving it a Market
Cap of 100 Gold. This is the price of the same company but set by the market, which
is you, all investors of ERX.

Then why on earth would someone want to pay 100 Gold for a company with assets
only worth 90 Gold your probably asking? Basically, a Company can have great
employees or a good management, which makes the company worth more money
than the Net Value of assets. A market works like a voting system, when you buy shares you push the price higher so a big difference between Org Value and Market
Cap might just mean that everyone loves the stock and believe in big future profits.
Although it’s wise to be careful when investing in these shares because if the wind
changes the downside can be huge. In cases like these a good dividends in terms of
current share price (dividend yield) is a good insurance.

The Dividend Yield is the most important figure when comparing dividends. It’s
simply the monthly dividend divided by the current share price. If a share is traded at
1 Gold and the monthly dividend is 0.1 Gold, the Yield is 10% (0.1/1). This means
that if you hold the share for 10 months you will have your full investment back, plus
what you receive when sell.

Let me give you a example of when a share with high Dividend Yield can save a
share in sharp decline. Lets say share AAA has a Market Cap that’s trice the size of
Organisation Value, which in itself might be risky. Then lets say the share cost 1 Gold
and has a monthly Yield of 10% or 0.1 Gold. If this price then drops to 0.5 Gold per
share, you would still receive 0.1 Gold in dividends every month. Buying this share
now would give you a Yield of 20% (0.1/0.5) and the whole investment is paid back
in only five months as opposed to ten months when the price was 1 Gold. On top of
this, a dividend Yield of 20% will most certainly attract investors and push the price
up. Since you bought at 0.5 your Yield is still 20% but also your share will be worth
more. To summarize, when share price fall, the dividend Yield rise! This is why
buying shares with high dividends is a good strategy most of the times.
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Below we’re presenting a selection of stocks that pay dividends, some of them have
the highest dividends of ERX known to us! But remember, as the share price goes up,
the Yield also goes down, just like it goes up when the share price goes down! To
calculate the Yield simply divide monthly dividend with the current share price!

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