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The power of dividends


When you buy a property you naturally become the owner of it. Similarly, when you buy stocks you become a owner (of course a shared-owners) of the company that issued these stocks. If you are already a shareholder, you know that some companies pay dividends while others don’t. In fact, companies are not required to pay any dividend to its shareholders. However, some companies decide to do so for a multitude of reasons and some even pay large amounts. In Vietnam, many companies pay large dividends. It is not unusual to have individual investors in the Vietnamese stock market who earn 5-7% return every year only of dividends. It is possible to define the dividends as being the share of the profits of a company allocated to the shareholders, the amount of which is voted at the general meeting. Dividends are not necessarily cash dividends. In fact, there are several types of dividends. Among these types, we think about stock dividend, scrip dividends or property dividends. Cash and stock dividends are nonetheless the most frequent types. If you are a shareholder of a company that pays cash dividends, you face two options. The first option is to use the cash to spend it. The second option is to reinvest this cash in stocks. There are advantages and disadvantages for both strategies. However, at Anh Thomas Investment we are strong believers that reinvesting cash dividends is the way to go. Of course, it s not all that simple. If you are retired for instance, you may want to spend this extra cash. However, if you are in a position where you still want to see grow your net worth, reinvesting is without any doubt the way to go. Reinvesting cash dividends is actually one of the most effective strategy in today's markets. The returns you could achieve when reinvesting are massively superior to the ones without reinvestment. In the next post we will take a couple of examples to illustrate the incredible power of reinvesting dividends.

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