What are dividends?
When investors decide to invest money in a company, they also expect a return. Investors expect this return either in the form of a good share price performance or additionally through dividends. Dividends are payments that companies make to their shareholders in order to return part of the profit generated to the investors. These payments are usually made regularly, often quarterly or annually in Germany. Companies pay dividends to reward their shareholders and provide incentives to buy their shares.
The amount of dividends depends on various factors. These include the company's financial performance, its dividend policy and its long-term plans. Some companies pay high dividends to attract investors. Other companies may reduce or suspend dividends in order to retain capital for growth projects or to invest in development & research. Below are a few examples of companies that do not pay out dividends at all, stocks that pay out annually, those that pay out quarterly and even some that pay out monthly (as of 04.2024). In addition to the examples, the dividend yield is also given, which indicates how much investors receive in dividends in relation to the share price.
No dividends
Annual dividend
Quarterly dividend
Monthly dividend
Dividends can be distributed in the form of cash or additional shares (so-called dividend shares). Shareholders can either reinvest the dividends received or use them as income.
Is that passive income?
In my opinion, this is the best source of passive income there is. If an investor invests in dividend stocks and holds these investments for an extended period of time, the dividend income can provide a regular source of income that requires relatively little or no active work.
However, investing in dividend stocks requires active research and monitoring of investments. Therefore, an initial effort is required. In addition, you may not be diversified if you are invested in individual stocks and not diversified with ETFs. Last but not least, it should also be noted that returns are not guaranteed and you actually need a relatively large amount of capital to create a significant side income. The brokers Scalable Capital and Trade Republic, which we also use ourselves at The Mindfulness, are particularly suitable for beginners.
