Dividend

Stock investment is a common way of managing money, and many people hope to obtain high returns by buying and selling stocks. However, the stock market is full of risks and fluctuations, and not everyone can withstand short-term price fluctuations and long-term market changes. So, is there a more robust stock investment strategy? The answer is yes, and that is dividend investing.

What are dividends?

Dividend (Dividend) is the interest on stocks, which refers to the income distributed by a joint-stock company to shareholders according to the dividend rate from the after-tax profits withdrawn from provident funds and public welfare funds. Dividend rate refers to the ratio of the amount of cash or other property distributed by the company to each shareholder each year to the face value or market value of each share. Generally speaking, the higher the dividend rate, the stronger the company's profitability and the higher the return to shareholders.

What forms do dividends take?

There are three forms of dividend distribution: cash dividends, stock dividends and property dividends.

Cash Dividend: Dividends distributed in the form of cash, which is the most common form. Cash dividends can directly increase cash inflows to shareholders, or they can be used for reinvestment or consumption.

Stock Dividend: The company's own stocks are used as dividends. Usually, the company uses newly issued stocks or a part of treasury shares as dividends instead of cash to distribute to shareholders. This form can increase the company's liquidity and market value, and can also lower the price per share and attract more investors.

Property Dividend: Dividends are distributed in the form of company assets, such as other company securities, products, etc. This form is relatively rare. Property dividends can reflect the importance a company places on certain assets and can also improve a company's efficiency and flexibility.

What are the benefits of dividends?

For investors, obtaining stable and considerable dividend income has the following benefits:

Increase your income source: In an environment of low interest rates and inflation, obtaining a steady and substantial cash inflow can increase your income source, improve your quality of life, or achieve financial freedom.

Reduce risk: Choosing to invest in high-quality and high-dividend companies can reduce the volatility and risk of the investment portfolio, because these companies usually have strong profitability, good cash flow and stable growth prospects.

Improved returns: Companies with high dividend yields tend to achieve higher total returns (including capital appreciation and cash earnings) over the long term because these companies are often able to effectively use their internal funds to reinvest or repurchase their own shares. thereby increasing earnings per share and market capitalization.

Resistant to market changes: When the market falls or fluctuates, companies with high dividend ratios are often able to withstand market pressure because these companies usually have strong anti-cyclical and competitive advantages, and dividends can provide investors with psychological comfort and confidence.

How to choose companies with high dividends?

To obtain stable and substantial returns from dividend investing, you need to choose high-quality and high-dividend companies. Here are some methods and indicators for selecting high dividend-paying companies:

Dividend policy: Check whether the company has a clear and sustained dividend policy, whether it can maintain or increase its dividend level, and whether it can flexibly adjust its dividend method according to market changes.

Dividend history: Check the company's dividend history over the past few years to see if it can steadily pay cash or other forms of dividends, and whether it has ever reduced or stopped dividends.

Dividend ratio: Check whether the proportion (Payout Ratio) of the company's after-tax profits distributed to ordinary shareholders (excluding preferred stocks) is reasonable and sustainable every year.