is a simple concept yet most investors do not go through the path of dividend growth. One reason for this may be the fact that it can be boring to be a dividend growth investor because you simply sit on the funds that are planted at a particular organisation and left for a number of years to grow. The overall earnings from a good dividend investment, though can provide you the best results possible from a particular investment.
Here are few of the important concepts that you need to know when observing the way dividend growth investors operate to make profits.
Dividends are part of the profits of a company which are shared with its shareholders, according to their share in the company. A public limited company that makes profits has to pay dividends if it has enough money available after planning expansion activities. Companies that pay dividends keep investors interested and do not find much problem in financing their business needs.
The concept of dividend yield is consistent with increasing profits
, but it is important to understand that sometimes, increased dividend yield may point to a failing company due to low share prices. The yield is defined as the annual dividend for each year divided by the price of the share at the end of the business term.
It should not be used as a primary concept to learn about dividend growth because the growth depends more on the quality of the company and its investments towards its expansion and efficient financial working.
The Payout Ratio
The payout ratio
refers to the ratio of the shared earnings of the company to the total earnings of the company. Many limited liability companies use the model of a fixed percentage which is distributed to the shareholders. Companies often decide to share a specific percentage, such as sharing 10% or 20% of their annual savings with their shareholders. These savings are then distributed according to the total number of shares of the organisation.
Dividend growth investors stay patiently with such an organisation especially the one which is also growing consistently each year. The payout may be a small amount but as the numbers of years pass and the size of the company grows, small payouts add up to create a huge amount of savings that show amazing average growth.
The Use of Rising Stocks
Dividend growth investors around the world have been using growing companies as the best investment options. Companies such as Nestle, Kellogg, Coca Cola and others have grown rapidly over a number of years in size and their shareholders have seen an amazing appreciation in the shares they once bought many years ago.
The Final Word
Dividend growth investors are smart people who find good companies with solid growth and leave a sum invested in them for a long period of time. Ultimately, the return from such companies can be much greater than money invested in other ventures. Dividend growth strategy is also excellent because it builds up a strong market presence as well because of constantly buying more shares of a company with each growth cycle.