Shares per transaction costs, per dividend

I had previously analyzed how some transaction costs can really hurt your bottom line. this is when you are examining the number of shares per transaction costs, per dividend. Another way to look at things may be how much the dividend is, as compared to the shares per transaction fee.

I recently analyzed a buy order and the stock would have required either an increase in the stock price by the exact same amount of the dividend per quarter, or of course the actual dividend coming through in order to hit a break-even point on the stock purchase. This has the effect of making the stock purchase more risky since there was a 50/50 chance that it would be a good buy at the current stock price and with the given number of shares. Keep in mind that this is usually when you’re talking about a low number of shares purchased.

The formula would look like this:

# shares
transaction cost

The math was simple enough. We simply divided the number of shares (10 in this particular case), by the rounded up transaction fee of $8 (it was actually $7.95). This is the number of shares per transaction costs. Coincidentally the quarterly dividend happened to be exactly that same amount even though the calculation was obviously skewed by 5¢, which in the grand scheme of our analysis doesn"t matter very much.

I definitely don’t use this as my only method of choosing a stock to own or even a reason to sell a stock. It is one factor that I use in my investigation as to whether I want to own a stock or not since I avoid purchasing stocks on a whim.

Final thoughts: We should learn to analyze when and why we should make a purchase, however we shouldn’t get into a state of analysis paralysis (aka over analyzing). Determining if we get AP, we would be considerably better off to use target funds as opposed to individuals stocks.

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