The value of dividends

When it comes to investing in shares most people focus on the share price. However, the real genius behind share investing is actually the value of dividends received.

So what is a dividend? A dividend is a sum of money paid from a company’s profits to its shareholders and provides two main benefits for investors:

 

1. Value of dividends – a degree of investment certainty

A company’s share price in the shorter term can be driven by market sentiment rather than fundamentals. Dividends on the other hand are the real measure of a company’s health. A company cannot pay out money it hasn’t earned. Dividends are a good measure of a company’s growth and real earnings.

Over time quality dividends will be reflected in the company’s share price so investors have the added benefit of longer term share price growth. This story can be seen in the companies in which CybiWealth invests. For example, the dividend and price history of Johnson and Johnson show that while there may be some variability in pricing, over time the share price will grow in line with the value of dividends produced:

 

2. Value of dividends an amazing compounding effect

By reinvesting the dividends you receive, you are able to accumulate more and more shares of each company in which you invest. As your share value and number of shares begins to compound over time, you will begin to experience the power of compounding. As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t, pays it.”

By way of example, investing £100,000 for 30 years at 8% annual growth (3% dividend yield and 5% annual growth) would yield a final value of over £1 million if you reinvested dividends but just GBP £432k if you did not. It is for these reasons that we focus on providing our investors with a portfolio of companies that provide reliable and ideally growing dividends. This consistent and reliable dividend growth is achieved through a security-selection process which filters out companies vulnerable to current economic conditions, which operate in unpredictable industries or have specific risks to dividends such as too-much debt or risky business models.

 

Through this rigorous selection process and on-going analysis of your investments we ensure that your hard earned money works every harder for you year after year. Our highly qualified investment team actively works to manage your investment portfolio and deliver consistently competitive returns without undue risks. The final result is a portfolio of multinational equities with excellent track records such as those shown below. We firmly believe that they will serve our investors well for decades to come.