Differentiate between income stocks and penny stocks-02177
This subjective question is related to the book/course
vu mgt613 Production / Operations Management.
It can also be found in
vu mgt613 Mid Term Solved Past Paper No. 1.
Income Stock:
By law dividend must be paid out of the company's earning they cannot be paid from borrowed funds. The bottom line profit a firm makes is its net income after taxes (NIAT). The firm's board of directors may pay a dividend from the amount if they believe it to be in the shareholder's best interest. NIAT may be retained in its entirely within the firm the entire amount may be paid out of more typically a portion of these earnings might be retained and a portion paid out. The proportion of NIAT paid as a dividend in the firm's payout ratio.
Income stocks are those that have historically paid a larger than average percentage of their NIAT as dividend to their shareholders.
Penny Stocks:
Penny stocks fall into a catch all category that refers to unusually risky specially in expensive share. Shares that sell for less than dollar 1 each would be considered penny stocks.
