Dividend investing in securities is a relevant method for capital growth that significantly outperforms bank deposits and other modern instruments in terms of returns.
What makes this investment approach attractive? What should investors pay attention to when investing?
These questions will be addressed by Sergey Tereshkin, the founder of OILResurs. The company's leader has thoroughly studied this field and is able to share his personal experiences. More information about the entrepreneur can be found on his personal website: sergeytereshkin.ru (сергейтерешкин.ру).
Features
Shares of profitable companies consistently appreciate in value, allowing investors to profit from buying and subsequently selling stocks. This enables many to accumulate significant capital.
However, investors can also earn from stocks by receiving dividends. This long-term investment strategy can provide individuals with a decent annual income. The amount of the payout directly depends on the company's profits, which are distributed among all shareholders based on the company's performance during the previous reporting period.
Most often, dividend payments occur once a year, with less frequent distributions occurring every six or three months. In some cases, dividends may not be paid at all, depending on the company's profitability and the board of directors' decisions.
The returns on investments can vary significantly depending on various factors. It's crucial for investors to independently assess the size of potential profits, for which analyzing figures from previous periods is advisable. Some companies promise dividend payouts exceeding 20% annually.
Stocks can only be purchased on the exchange in lots. The number of securities in a lot can vary greatly, ranging from 1 share to several thousand, directly influencing the cost.
When buying shares, it is important not to succumb to excitement and avoid investing all funds in stocks of a single company. Diversifying risks is essential. This can help prevent the total loss of capital and ensure income. No company, no matter how large or established, is immune to bankruptcy. Thus, investing money in shares of one enterprise always carries the risk of losses, along with the complete loss of dividends. The value of the shares can drop rapidly, making it impossible to recoup the original investment upon sale.
Proper portfolio formation is necessary. This way, even if the returns on some securities decline, others can fully cover the difference, ensuring income for the investor. The portfolio should include shares from companies promising high dividends as well as those that do not offer substantial returns.
Additionally, it is recommended to use specialized services that allow investors to analyze data about companies in real time. Such systems provide users with current statistical information and a calendar for dividend calculations, significantly enhancing user convenience and saving time on independent calculations.
Reasons for High Dividend Payouts
Companies may distribute high dividends for various reasons:
- The involvement of the government in the corporatization process. In this case, the dividends of the majority shareholder are directed to the national budget. Typically, the payout amounts to no less than 25% of the company's profits, with local budget allocations reaching 30%. The mandatory replenishment of the budget guarantees profit distribution to all investors, ensuring income for stakeholders.
- Change of ownership. When a stake in a company is sold, funds from credit organizations are often attracted, resulting in mandatory payments that coincide with increased profits and dividend payouts.
Potential investors should also be aware that majority shareholders, holding over 50% for more than a year, are exempt from tax payments. This relief has been introduced to enhance the attractiveness of investing in domestic companies.
How to Choose the Right Company for Investment
Identifying firms capable of providing high dividends can be based on several criteria:
- The company's profitability. Attention should be paid to the annual revenue of the organization. This requires a thorough analysis of information from various sources. A significant increase in profits over time could be a precursor to favorable dividend declarations.
- Retained earnings. Investors should focus on information regarding liabilities, which is detailed in the accounting documentation. Retained earnings may subsequently be distributed as dividends to the company's shareholders.
To generate income, it is important to acquire shares of a company in a timely manner. It is not necessary to invest funds at the beginning of the year and then wait a long time for payouts. Stocks may be purchased right before the conclusion of the annual performance review. This means that just a few weeks after purchasing the shares, investors could see dividends that cover a substantial part of their initial investment.
After receiving income, the securities can be successfully sold to another party. In this way, the investor retrieves all funds spent on the purchase, plus profits in the form of dividends.
The dividend investing strategy is primarily focused on long-term capital allocation. In this scenario, it is considered the most attractive. However, it requires careful analysis and weighing of each decision, which is achievable only for experienced investors. This investment method may not be suitable for beginners.
