magic of dividend
I am sure you are now thinking about “WHAT THE DIVIDEND IS?!”
It is simple. Imagine that you are a young farmer and you want to raise cows. Instead of saving money on your bank account, you just bought a few calves and started to take care of them. You are regularly investing in them to be healthy and strong. As they grow, they become a cow. Some other farmers in the neighbourhood are killing their cows for meat, but you are a clever farmer and you know that the cow can give you a milk and also can have some calves. So your herd grows constantly. You can sell milk that you don’t need and buy some new calves to grow your herd faster. When you have a big herd, you can kill some average cows for meat and also sell the unneeded meat and buy new calves with higher potential.
Unfortunately, some of your cows can become sick. Sometimes they heal, sometimes they die. That’s the life. But you are constantly striving to have as strong and vital cows in your herd as you can and get rid of the cows that tend to illness as soon as possible. The best you can do is to leave them in the shop, but it requires some experience in farming.
Now you are the clever farmer and know what is the whole business about. In the above example, calves and cows represent stocks, milk represents cash dividends, meat represents available cash after selling the stocks and new calves represent stock dividends and situations when a company is divesting new company so you get shares of that new company (For example I have 2 divisions in my company – one for making cars and the other for the finance business – and I decide to run the car business under 1 company and the finance business under another new company).
And finally, sick and death calves and cows represent bad stocks that you either choose badly or situations when they became bad after some time of prosperity. To avoid those dead cows, you have to take care of them regularly. For example bring them for the medical check-up every month or feed them just with quality food.
In the bottom line, the dividend is a share on company’s profit. On the US markets, it is usually paid quarterly to the shareholders so that you get the milk from your cows 4 times per year.