What is a dividend?

(TIP: You might want to look at my other posts on the stock market, and what is a share before coming here but if you have a good understand of it. Please, continue)

According to goggle its…

A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits.

To understand a dividend we should first know what a share is. I go into more detail in my investing blog post so I’ll keep this simple and short.
You give a company (Apple, Dominoes, HSBC etc) some cash and in return you get a share/part ownership in the company (usually a small, minuscule percentage) (this differs depending on the company and the amount you give that company.)

It a complicated way of saying here some cash now go make us more.

There are 2 different kinds of companies growth and Dividend.

Growth stocks (companies) use your money to pay for research, development, day to day expenses etc with hopes of growing and expanding thanking you later when you go to sell your shares at a higher profit than when you bought them.

A dividend paying company is different. They earn a lot of money and yours is just extra so instead of them investing in different things they give it back to you as a thanks (and so you’ll tell your friends to do the same.

I like to think of it as once I see a business that I am invested in (normally a dividend one), in a small way everyone that is working, is working to make me a little richer. (A very small amount but they are).

The way a company pays a dividend is different for each company but generally is done through an interim, Annually, Quarterly or monthly.

A company would usually say there going to pay so much in a year (Ie £1:00 per share) this doesn’t sound like a lot, especially if you count how much you paid for that one share. This is fully passive income. No need to do anything for it. The business worked hard for you. Of course this website and Blog is about Passive income and how powerful it is.

Anyway. They pay this to you, usually, Quarterly but each company is different and you might want to look at each individual company for this data. Quaterly means they will be paying you 4 times a year. This doesn’t mean you get £4 but £0.25, 4 times in a year (=£1).

This doesn’t sound like anything now but remember you can have multiple share and it can add up quite quickly and, to reiterate, Fully and utterly passive. I’m also not even covering compound interest, dividend yield and so much more (which will all have their own, separate post).

I understand if you don’t feel like you’ve learnt a lot, or anything at all from this post but it’s a great start. Keep up to date with these blogs and I’ll be sure to cover more and answer all your questions!

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Inv3st in you

Published by 1rishpher0

I am the writer and creator of Inv3st, a money blog. I also operate a private account, 1rishpher0, which talks about real world issues, me as person and anything else we want to talk about or expose! (aside from money and investing as that's done on Inv3st).

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