What is THE DIVIDEND | TRADING TIPS
Jordi Martí explains the main characteristics of dividends and explains why it is so important in our operations. What happens if a company pays out too many dividends? How is the dividend yield calculated?
Today I will talk about the dividend. What is the dividend? It is the part of the company's profits that it distributes to its shareholders. When we buy a stock in the fund we are buying a small part of that company. If that company has benefits when those benefits are distributed to shareholders, i...Read more
Today I will talk about the dividend. What is the dividend? It is the part of the company's profits that it distributes to its shareholders. When we buy a stock in the fund we are buying a small part of that company. If that company has benefits when those benefits are distributed to shareholders, it pays them to us in dividend format.
Let's see what features have a dividend. The first, and perhaps the most important for me, is that the dividend is not an assured income. When we buy shares we call them equities, because that income, which is the dividend, depends on the board. The board will decide if dividends are paid that year, if not, and in what percentage. Therefore, never buy a share solely on the basis of the dividend. The dividing is one more piece of information that we have to decide whether to buy a share or not, but not the only one.
The second characteristic is that you have to be very careful with companies that pay out a lot of dividends. Imagine that you have a company that generates many benefits, and you decide to always distribute those benefits among the shareholders; In other words, you never decide to reinvest in your own company to generate new products, to generate new markets ... It is dangerous when a company distributes all the profit. Perhaps it is because they do not have new projects or perhaps the company is not going to continue in the future. You must take it into account.
Finally, you have to assess the dividend yield, which is what you will find when you search for information. The dividend yield is the percentage that you are going to earn based on what you have contributed to that company. You will find a lot of web pages and economic press where he will tell you about the dividend yield at the moment in Spain. For example: Repsol's dividend yield is between 14 and 15, why? because its price is very low. Therefore, by contributing the same amount of money to the purchase of shares I can buy many more shares, and it will have a much higher dividend. The dividend is something important in our investments, but you should not only buy long-term investments or long-term shares based solely and exclusively on the dividend, because it may disappear.
Now that you know what the dividend is and its characteristics, remember that as Warren Buffett says: "rule number one is not to lose money and rule number two is to follow rule number one"Less