Dividend investing

The lesson in full

1. Some companies share their profits with their owners in cash. That payment is a dividend: income you get just for holding the shares.

2. To receive it, you must own the shares before the ex-dividend date. On that day the share price usually drops by about the dividend, since that cash is leaving the company.

3. Dividend yield = yearly dividend ÷ share price. A share at 50 paying 3 a year yields 6%.

4. Big, steady companies often pay dividends: banks and telecoms in Indonesia, utilities in Spain, consumer giants worldwide. Young, fast-growing firms often pay nothing and reinvest instead.

5. Common mistake

   Mistake: chasing the highest yield. A yield jumps when the price falls, often because profits are in trouble. If the company then cuts its dividend, you lose twice.

6. Reinvest dividends and compounding kicks in. One study found that since 1960, reinvested dividends and their compounding produced most of the S&P 500's total return.

7. Key takeaway

   Dividends are a share of profits. Look for payouts that are sustainable, not just big, and reinvest them to compound.