The Importance of Dividends
Whenever a company pays you a dividend, that's cash in your pocket - from the company that you own, to you. And if a stock has to pay you dividends in cash, the company must actually have that cash in order to pay you because cash dividends don't lie.
Dividends are critically important and to understand why, you need to understand what it means to be an investor as well as exactly what we as investors are entitled to whenever we invest.
If we loan $10,000 to a friend, and we get in writing that he will pay us back $11,000 in one year's time, what we are entitled to in a year is our $11,000. And what is our risk? Our risk is that he doesn't pay us. But it is a binding contract and we are entitled to our $1,000 in interest, which means that we are being paid 10% per year for taking on this risk.
If you invested that same $10,000 in any stock, what's at risk? Quite a lot, because that stock is normally trading at a given number times sales. And what exactly are we entitled to whenever we invest in any stock? The answer is absolutely, positively, unequivocally nothing!
The only thing you are entitled to as a stock investor is dividends!
So before you make an investment in anything, you should ask yourself this question: What's in it for me? The bottom line is that you want to know what you are entitled to whenever you invest in something. And making sure you get paid is quite often the difference between investing and speculating.
When considering your next investment, understand exactly what it is that you're entitled to. No matter how good the investment may seem, if what's in it for you is not clear, then what are you doing? So regardless of the story, make sure you know what's in it for you up front. And one simple way to tilt the scales in your favor is to make certain that you get paid!
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Dividends are critically important and to understand why, you need to understand what it means to be an investor as well as exactly what we as investors are entitled to whenever we invest.
If we loan $10,000 to a friend, and we get in writing that he will pay us back $11,000 in one year's time, what we are entitled to in a year is our $11,000. And what is our risk? Our risk is that he doesn't pay us. But it is a binding contract and we are entitled to our $1,000 in interest, which means that we are being paid 10% per year for taking on this risk.
If you invested that same $10,000 in any stock, what's at risk? Quite a lot, because that stock is normally trading at a given number times sales. And what exactly are we entitled to whenever we invest in any stock? The answer is absolutely, positively, unequivocally nothing!
The only thing you are entitled to as a stock investor is dividends!
So before you make an investment in anything, you should ask yourself this question: What's in it for me? The bottom line is that you want to know what you are entitled to whenever you invest in something. And making sure you get paid is quite often the difference between investing and speculating.
When considering your next investment, understand exactly what it is that you're entitled to. No matter how good the investment may seem, if what's in it for you is not clear, then what are you doing? So regardless of the story, make sure you know what's in it for you up front. And one simple way to tilt the scales in your favor is to make certain that you get paid!
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posted by Bob Moser at
6:23 PM
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