Kavan Choksi Provides an Introduction to Dividend Investing
A dividend refers to a regular cash payment or additional shares from a company to shareholders as a way of distributing a part of its profit. A company cannot pay dividends unless it makes a profit. As Kavan Choksi / カヴァン・チョクシ mentions, dividend investing simply implies to investing in dividend-paying stocks. Dividends would allow investors to generate an income, or they may opt to build long-term returns by reinvesting the dividend amount. Dividends are generally paid out on a quarterly or annual basis.
Kavan Choksi / カヴァン・チョクシProvides a Brief Insight into Dividend Investing
Dividend investing is an increasingly popular investment strategy that puts emphasis on stocks that distribute dividends. Dividends are payments made by companies in the form of stock or cash dividends. When investing in dividend-paying stocks, one can potentially profit in two ways:
- From dividend payments
- From any price appreciation of the underlying stock
Every business must decide how to allocate its profits. It has to choose between reinvesting earnings to fuel growth or returning a portion to shareholders. One common method of returning value to shareholders is through dividends. Companies that pay dividends regularly provide investors with a dependable stream of income. On the other hand, firms focused on rapid growth often prefer to reinvest earnings into new projects, infrastructure, or acquisitions, aiming to enhance long-term shareholder value. The decision to issue dividends is made by the board of directors of a company.
Beyond individual companies, mutual funds and exchange-traded funds (ETFs) can also distribute dividends. These typically stem from the dividends received from the stocks they hold, which are then passed along to the shareholders of the fund. Dividend investing is a strategy centred around acquiring assets that provide consistent dividend payments. Investors may either buy shares in individual dividend-paying companies or choose mutual funds and ETFs that focus on a diversified selection of such stocks. Such an approach is popular among those seeking steady income alongside potential capital appreciation.
Dividend investing strategies can fall into any of these two categories, based on the criteria being followed and the investment goals targeted.
- High Dividend-yield Strategies target companies that have high levels of dividend yield. Such strategies have the potential to provide opportunities for capital appreciation and a high level of dividend income.
- Dividend Growth Strategies focuses on investing in companies that have a history of consistently growing their dividends. The ability to grow dividends in a consistent manner over a long period of time tends to demonstrate qualitative attributes like operational efficiencies and fiscal discipline. It may potentially lead to growth from dividend income and capital appreciation. ETFs built with such a strategy generally track indices of stocks that have grown their dividends over time in a consistent manner.
As Kavan Choksi / カヴァン・チョクシ mentions, dividend payments may help offset losses when the price of a stock declines, acting as a financial cushion for investors.