Investing
How Much Dividend Will I Earn from Owning Shares?
4 key things you need to know about dividend payments!
During bank public offers and rights issues, I often receive inquiries from first-time investors. One common question I hear is, “How much will I be paid in dividends?” It’s a valid question to ask, as no one wants to invest without getting a return.
Let’s break it down with 4 key things you need to know about dividend payments!”
1. Dividends Are Not Always Guaranteed
Dividends are paid out of a company’s profits, but they’re not a given. Companies can only pay dividends when they make a profit, and sometimes, they might choose to reinvest profits back into the business instead.
2. Not All Public Companies Pay Dividends
Some public companies don’t pay dividends at all. Examples, of such companies, include: Telsa (TSLA), META, and Amazon (AMZN). If you’re investing specifically to earn dividends, always check that the company you’re considering not only pays dividends but has done so consistently in recent years.
3. Dividend Payments Depend on Profits and Shares Owned
The amount of dividend a company pays its shareholders depends on the profits made at the end of the financial year. Your earnings also depend on the number of shares you own.
For example:
- Peju owns 100 shares of ABC Company, while Motunde owns 1,000 shares.
- If ABC Company pays ₦8 per dividend share, Peju will earn ₦800, while Motunde will receive ₦8,000.
4. Predicting Dividend Income is Not an Exact Science
While it’s hard to predict exactly how much or how often you will receive dividends, you can make a close estimate! Here’s how:
👉 Check the Dividend Yield (%): Look at the company’s dividend yield over the past 5 years, which you can find in the company’s prospectus (a document detailing the investment offering).
For example:
If you bought 1,000,000 shares in Zenith Bank, and their dividend yields from 2019 to 2023 were 14.6%, 15%, 12.5%, 13.6%, and 10.1%, the average yield is 13.16%.
Based on this, you could estimate an annual dividend of ₦131,600. (Dividend Amount = Dividend Yield x Investment Amount)
This illustrates how your investment amount directly affects your potential returns!
Since you enjoyed reading this, you will love this:
“Watch out that you do not lose what we have worked so hard to achieve. Be diligent so that you receive your full reward.”
2 John 1:8 [NLT]
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