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I bought 10 stocks of a company using morgan stanley's stockplan account. The company has announced 2 dollar earnings per share last quarter. So I should receive 20 dollar. Where will this amount be credited to? I've tried search on morgan stanley and online, but I couldn't find anything related to this. Is my understanding incorrect?

10

You get nothing. The money goes into the company's bank account, so they can grow their business. The share price may go up, because the company with lots of cash in their bank account is worth more. They may pay a dividend. Or they may invest the money in the business. Or they may build up a cash reserve, or pay back any loans they have. They may start buying back shares. But you have no right to any of the earnings.

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You're confusing earnings with dividends. Earnings is what the company makes (and keeps!). Dividends is what the company pays back to its owners (shareholders).

Some companies have a policy to pay high dividends. These are usually called "value stocks" and perhaps "blue chips" too (correct me if I'm wrong). You will get income from them but they will not go up in price.

Others will reinvest their profits so that they can expand their business. They might go up in market value if they expand well.

Bear in mind that the company also has to pay taxes on that income, and then take into account the depreciation of their assets. It's possible that they don't get to keep the full 2 dollars/share themselves.

  • Are earnings not "net", after taxes and other expenses like depreciation? – DJohnM May 3 '18 at 21:26
  • @DJohnM - Read up on "EBITDA" - Net Earnings Before Interest, Taxes, Depreciation and Amortization – Norm May 3 '18 at 21:39
  • Just to be clear - dividends can come out of the company's earnings. The earnings that are not paid out are 'reinvested' in the company so that they may increase their dividend in the future. – xirt May 5 '18 at 19:09
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    A stock being blue chip doesn't have anything to do with its dividend payments. More-so the size and maturity of an organization. – Chris May 10 '18 at 1:06

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