Dividends: Definition | Understand the dividends: a guide for investors | Astroveda

Dividends are an essential component of the equity investment, but often remain poorly understood by many investors.

In this article, we will explore what dividends are, how they work and why they can play a crucial role in your investment strategy.

What is a dividend?

It is a sum of money paid by a company to its shareholders, generally as a distribution of profits.

When you have shares of a company that pays dividends, you receive part of the company’s profits, in proportion to the number of shares you have.

Types of dividends

There are different types:

1- Dividends in cash : This is the most common type of dividend. The company pays a sum of money directly on the shareholders’ account.

2- Dividends in actions : Instead of paying money, the company offers further shares to shareholders. This slightly dilutes the value of each existing action, but increases the total number of actions held.

3- Special dividends : These are punctual payments that are not regular. They are often paid when the company has created exceptional profits.

Why do companies pay dividends?

Companies pay dividends for several reasons:

• Attract investors : The companies that pay dividends are often perceived as more stable and less risky, thus attracting investors in search of passive income.
• Reinvest in growth : Some companies choose not to pay dividends and preferably reinvesting their profits in the growth of the company. However, those who pay dividends often show confidence in their financial stability.
• Remunerated shareholders : Dividends can be a means of rewarding shareholders for their investment, providing them with a regular income flow.

How to evaluate?

When you plan to invest in shares that pay dividends, it is essential to consider several factors:

1 – Return of dividends : This represents the amount of the annual dividend divided by the price of the action. The high yield may seem pleasant, but it is essential to verify the sustainability of this dividend.

2 – Report of distribution : This indicates which part of the benefits is distributed in the form of dividends. A distribution ratio of less than 60 % is often considered a good sign of sustainability.

3 – Growth of dividends : The companies that regularly increase their dividends demonstrate a solid financial performance and cautious management.

The advantages

Invest in shares present several advantages:

• Passive income flow : They can constitute a regular passive income, ideal for pensioners or those who are looking for a further source of income.
• Reinvestment : Dividends can be reinvested to buy more shares, which can increase your investment over time.
• Stability : The companies that pay dividends tend to be more stable and less volatile, thus offering certain safety during difficult market periods.

Conclusion

Investing in dividends actions can be a profitable strategy to generate passive income and increase activities.

However, it is essential to do your research and understand the foundations of the company before committing.

By keeping an eye on the returns, distribution relationships and the growth of dividends, you can make informed decisions that help you achieve your financial objectives.

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