Stock is too expensive

Some inexperienced people look at the stock prices of different companies and buy based on the fact that one company is cheaper.  This is not recommended.

For example, we have company ABC and XYZ.  Company ABC is $100/share and gives a dividend payout of $10/year.  Company XYZ is $10/share and gives a dividend payout of 25 cents/year.  Therefore, company ABC gives a 10%/year dividend payout while company XYZ gives a dividend payout of 2.5%/year.  Based on the the dividend payout, Company ABC is a better deal.

Unfortunately, buying based solely on dividend payout can result in big losses. An investor will have to do more research on a company to determine why the dividend payout is higher.  An unusually high dividend payout can mean investors are selling because the company is losing money and the dividend payout maybe cut soon.

Keep that in mind when comparing 2 or more corporations in the same industry.  The price/share is affordable, but that can be a trap.

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