Dividend
The share of profit paid out to shareholders, in cash or in shares.
The share of profit paid to shareholders
Each year the shareholders’ meeting decides what share of profit to pay out. The payout ratio varies: utilities and energy often pay out more than half their profits, growth companies little or nothing, preferring to reinvest. The dividend is paid after the ex-dividend date: a buyer that day no longer gets it, and the price drops by that amount at the open.
How much dividends weigh in returns
Reinvested, dividends make up a major part of long-run equity returns. That is why a price index (CAC 40) is distinguished from its total-return version (CAC 40 GR), which ends up much higher after a few decades.
- Payout ratio = dividend per share / earnings per share
Reinvesting dividends for 20 years
- €10,000 in stocks, prices up 4% a year, 3% dividend.
- Without reinvesting: 10,000 x 1.04^20 = €21,911 of capital (plus the dividends received).
- Reinvesting: 10,000 x 1.07^20 = €38,697.
Reinvesting almost doubles the final capital compared with price gains alone.
Common mistakes
- Chasing a very high yield: it often signals a dividend cut.
- Buying just before the ex-date to “catch” the dividend: the price drops by the same amount.
Notitia newsroom · education, not investment advice.