Interest vs dividends

TheSpaceMan

Thanks Archi, I know it's unlikely I was just using figures to illustrate my point.

wesleyad

You are right there is no interest when buying into a company, only dividends. Compound interest makes no sense for this investment as there is no reinvestment (you could reinvest the dividends but the price of the share at that time would vary so much and you cant factor that into calculation)

You have to remember dividends are paid out on how many shares you own. Assuming you don't buy any more/ sell any, that number wont change. And therefore if the company doesn't change it's dividend payment, you will get the same dividend payment each year regardless of the stock value.

Eg you buy 1 share of company at 100p. past dividends have been 10p per share. So you will get 10% per year on your investment.

Next year company value has gone up to 200p. You have doubled your money if you sell now. But if they haven't changed their dividend structure you still get 10p for your share. Buyers coming in now only get 5% on their investment.

Also remember you haven't made/lost any money until you sell the stock. So if it halves in value you may still get the same dividend each year, and if you dont sell it is irrelevant that you only own 50p instead of 100p. As others have said, companies can change/stop dividends at any point.

redpete

The dividend % is a snapshot based on the dividends paid out over a year (during the previous 12 months?) and the share price when the % was calculated. Dividends are always paid as an actual amount per share - e.g. £0.12 per share - so the percentage will vary with the share price. Companies will also vary the amount paid out each period depending on how well the business is doing and whether they decide to reward shareholders or keep the money themselves.

colsten

redpete wrote: »

Companies will also vary the amount

paid out each period depending on how well the business is doing and whether they decide to reward shareholders or keep the money themselves.

"keep the money themselves" really means "keep the money for the shareholders" - of which each potential dividend recipient is one. All shareholders would normally want some of the profits retained in the company, in order to make investments (in land, machinery, buildings, IT, hiring etc) that allow the company to grow and/or ride out any tougher spells (revenue downturn, currency fluctuations, competition threats, legislation & compliance, taxation, PPI-type compensation claims etc).

Radiantsoul

Archi_Bald wrote: »

which companies have to pay interest?

Any company with borrowings. The point I was making was interest is paid before dividends.

Radiantsoul

JohnRo wrote: »

Not an accurate assessment.

Ownership of shares entitles you to dividends.

May not be today but in theory it is hard to see why you would want to buy shares unless the discounted value of dividends plus buybacks plus liquidation/ sale of business.

Archi_Bald

Radiantsoul wrote: »

Any company with borrowings. The point I was making was interest is paid before dividends.

You should have said so if this is what you were meant to have said. Not that what you were meant to say had any relevance in the context of this thread, as the OP is trying to establish how an investor/saver gets returns. In this context, it is totally irrelevant that the company may have loans on which they have to pay interest.

Radiantsoul

Savers are paid interest on loans they have made to companies.

Archi_Bald

Radiantsoul wrote: »

Ownership of shares entitles you to dividends.

May not be today but in theory it is hard to see why you would want to buy shares unless the discounted value of dividends plus buybacks plus liquidation/ sale of business.

???what are you on about? Your original post asserted that "If you buy shares you get dividends" - - something which is clearly not an accurate assessment, as JohnRo said.

Now you are saying that "it is hard to see why you would want to buy shares unless the discounted value of dividends plus buybacks plus liquidation/ sale of business." Even if you finished this sentence, it is most likely - once again - not an accurate assessment. Dividend potential is only one reason people might buy shares.

Archi_Bald

Radiantsoul wrote: »

Savers are paid interest on loans they have made to companies.

Are you referring to corporate bonds?

If so, could you please say so? And explain to the OP how your comments relate to the questions the OP asked.