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Understanding Importance of Dividends in Your Investment Portfolio

November 10, 2024
Investment
0

Dividends are a great way to earn money from your investments. But what exactly are dividends, and why should you value them?

Understanding  Dividends?

They are a portion of a company’s earnings that they pay to their shareholders. So, if you own stocks in a company, they might give you some money every few months as a reward for investing in them. Companies usually pay dividends in cash, but sometimes they offer more shares instead of money. You can easily monitor your dividends on Shareholder Live.

Shareholder Live in your pocket

Shareholder Live is an app that gives you a complete view of what’s happening with the stocks you own. It shows your transactions, how much money you’ve made from dividends and the total value of your portfolio. You can also see how your investments are doing in real time, and even access personal details.

Like a dashboard, it helps you keep track of everything about your stocks. The app is also available for download on the Play Store and App Store.

Why Dividends are Important for People Who Invest in Stocks

Dividends give you a steady flow of income. For people like retirees or anyone looking for extra cash, dividends can be a reliable source of money. You can use this income to pay for your expenses, save, or even reinvest it to make more money. Other importance of dividends include:

•          Total Return Enhancement

Dividends can add a lot of value to your total investment returns. Even if stock prices do not rise, receiving dividends means you still earn something. This is especially helpful when the stock market is not doing well because dividends give you a financial cushion.

•          Reinvestment Opportunities

Instead of spending the money from dividends, some people choose to reinvest it by buying more shares. This strategy can help your portfolio grow over time because of compounding. Compounding happens when the money you reinvest earns more returns later.

•          Lower Volatility

Stocks that pay dividends usually belong to financially stable companies. These shares do not fluctuate in price as dramatically as some others might. This implies they carry less risk and assist in maintaining your portfolio equilibrium, especially when the stock market is unpredictable.

•          Inflation Hedge

Inflation makes things more expensive over time. Many companies increase their dividends as costs rise. So, dividends can help you keep up with inflation, making sure your money holds its value even when prices go up.

•          Tax Advantages

In many places, dividends are taxed at a lower rate compared to regular income. This means you get to keep more of the money you earn from dividends, making it a smart way to earn extra cash without paying as much in taxes.

•          Signal of Financial Health

If a company consistently pays dividends, it’s a sign that the company is doing well financially. When a company can pay dividends regularly, it shows that they’re confident about their future profits, which can be reassuring for investors.

•          Portfolio Diversification

Having dividend-paying stocks in your portfolio can help spread out risk. These stocks add stability and balance out more risky investments, making your overall portfolio stronger across different market conditions.

•          Enhanced Portfolio Performance

In the long run, dividends can make a big difference in how well your investments perform. By combining regular income, reinvesting your dividends, and having more stable stocks, you’re likely to see better results from your portfolio over time.

How to Pick the Right Dividend Stocks

Now that you understand why dividends are important, how do you choose the right stocks that pay good dividends? Here are some steps to follow:

•          Diversify Your Investments 

Spread your money across different industries like technology, healthcare, and consumer goods. Don’t put all your money into one type of stock. This way, if one sector isn’t doing well, the others can balance it out.

•          Enrol in Dividend Reinvestment Plans (DRIPs) 

 Some companies offer Dividend Reinvestment Plans (DRIPs), where your dividends are automatically used to buy more shares. This makes it easy to reinvest and grow your portfolio faster.

•          Evaluate Dividend Sustainability 

Before buying a stock, make sure the company is in good shape. Check how much of their earnings they use to pay dividends and whether their profits are growing. You want to invest in companies that continue to pay dividends for a long time.

•          Monitor the Financial Health of Your Investments 

  Keep an eye on the financial reports of the companies you’ve invested in. Review their income, cash flow, and overall market performance to ensure they remain strong.

•          Attend Annual General Meetings (AGMs)

  By attending AGMs, you can hear directly from company leaders about their plans and whether they’ll continue paying dividends. You’ll also get a better idea of how well the company is managed.

•          Stay Informed on Market Changes 

  Make sure to stay updated on what’s happening in the stock market. Sign up for financial newsletters and follow dividend-specific alerts to know when to make adjustments to your portfolio.

•          Manage Risks

  Always keep your portfolio diversified to manage the risk of a company cutting its dividends. Pay attention to things like company debt and profit margins, especially during tough economic times.

•          Keep Your Contact Information Updated

  Ensure your contact details are up to date with your brokers and portfolio companies, so you don’t miss any important updates or dividend payments.

Coronation’s Role in Keeping Track of Your Investments

At Coronation, we focus on using technology to make it easy for our customers to manage their investments. Our platform helps investors in many ways, offering 24/7 customer support and personalized online accounts where they can see real-time updates on their portfolios and dividend histories.

With Coronation’s ShareholderLive platform, our clients can easily view their investment portfolios and stay updated on their dividend payments and other important information.

Coronation Registrars has grown into a full-fledged wealth management provider. By partnering with other companies in the Coronation Ecosystem, we offer a platform where investors can register for trading stocks and mutual funds, and even open brokerage accounts connected to their banks.

Discover how Coronation Registrars Limited can guide you through managing your investments and help you achieve long-term financial success.

Contact Details

Email: customercare@coronationregistrars.com

Phone: 020-1-2272570

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