MEPX
Chapter 7 of 12All chapters
  1. 1What a share is
  2. 2Exchanges and brokers
  3. 3How a price is set
  4. 4Order types
  5. 5What it costs
  6. 6Reading a company
  7. 7Dividends and returns
  8. 8Indexes and funds
  9. 9Risk and diversification
  10. 10Market cycles
  11. 11Psychology and mistakes
  12. 12Learning further

Chapter 7 of 12

Dividends and returns

Two ways a holding pays you.

Income and growth

A return comes from the price rising and from dividends paid along the way. Mature companies tend to pay out; growing ones tend to reinvest, and neither is automatically better.

  • Dividend yield is the annual payment divided by the price.
  • A very high yield often means the price has fallen for a reason.

Compounding

Reinvested dividends buy more shares, which pay more dividends. Over decades that effect accounts for a large share of total returns, and it is the least dramatic thing in investing.