Dividend is an important term used in the world of investment strategies. This is a portion of a company's profits that is paid out to its shareholders, often in the form of money. Dividends are an important part of many investors' investment strategies, as they supplement the returns of the shares themselves. In this blog post, we will delve into what dividend is, why companies pay out dividends, some well-known dividend-paying companies and why the so-called "dividend on dividend" is a good way to build wealth.
What is dividend?
Dividend is a portion of a company's profits that is paid out to shareholders. This is often in the form of money, but sometimes in the form of shares. Dividend is an important part of many people's investment strategies, as it can supplement the returns of the shares. Dividends are often paid out in the form of a fixed amount per share, and this amount is often set by the company's board of directors. An example is Heineken, which pays out 1.61% dividend per year. With a share price of 90.80 euros, this amounts to 1.46 euros per year!
Why does a company pay out dividends?
Why would a company voluntarily give away a portion of its profits? There are several reasons why a company pays out dividends. One of the main reasons is to reward shareholders for their investment in the company. This can attract shareholders who are interested in the long-term growth of the company and not just short-term profits. A company can also pay out dividends to convince shareholders to hold onto their shares rather than selling them with a lower valued share. This can also help reduce the volatility of the stock price.
Another reason why a company pays out dividends is to finance the company. Many companies pay out dividends so their shareholders can benefit from the growth of the company while also having money to invest in growth and development of the company and its various processes. This can then enable the company to realize more revenue and profits.
Well-known dividend-paying companies!
There are many well-known dividend-paying companies, including Johnson & Johnson. This is one of the largest pharmaceutical companies in the world and has been paying dividends to its shareholders for over a century. The company has a long history of consistent dividend payments and is one of the most popular stocks among dividend investors.
An another famouse company is Procter & Gamble. This consumer goods company has been paying dividends for over 130 years. The company has a long history of consistent growth and stable dividend payments, making it attractive to many investors.
Another well-known company is Coca-Cola. This globally recognized beverage company has been paying dividends to its shareholders for over 80 years. The company has a large group of dividend investors and also a long history of stable growth and consistent dividend payments, making it a popular choice for many investors.
Why is "dividend on dividend" a good way to build wealth?
Dividend on dividend, also known as compounding, is a good way to build wealth because it increases the returns from stocks. When a company pays out a dividend, an investor can use that money to buy additional shares of the company. These extra shares will then also pay out dividends, leading to a higher total amount of dividend income. This can lead to significant growth of the investor's wealth over the long term.
Additionally, compounding can also help reduce the risk of an investment portfolio. This is because the money used to buy additional shares does not come from the investor themselves, but from the company's dividends. This allows the investor to maintain their investment amount and still benefit from the growth of the company.
In short, a dividend is a portion of a company's profit paid out to its shareholders. It is an important part of many people's investment strategies because it can complement the returns from stocks. Companies pay out dividends to reward their shareholders for their investment and to convince shareholders to keep their shares in the company!
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