How to grow money 'babies' with your dividends

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Paula Luckhoff

93 days ago
How to grow money 'babies' with your dividends pixabay.com, 2019

In a nutshell, dividends are payments a company makes to its shareholders - a way to share in the profits.

And, notably, it is another way for you to make money out of your investments.

Basically, when a company delivers a profit they decide to do one of two things with those profits. They either re-invest it in the business towards growth projects... make some acquisitions... or they decide to put that cash in the hands of shareholders.

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

People often decide to pay what looks like a small amount of money at the time into their bank account, or simply to spend it.

If you're not using that cash as a means to supplement your income, the best thing would be to put it right back into the share you invested in initially (if that is is still solid).

That's the advice of Chantal Marx, Head of Equity Research at FNB Wealth and Investments.

"It's extremely important to look at your total return profile when looking at a return on your investments"

Bruce Whitfield interviewed Games on The Money Show.

If you put that R1,000 (for instance) in the market, you do have the opportunity to benefit from the magic of compounding.

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

The power of compounding is that you are earning dividends on dividends, and interest on interest, capital gains on capital gains... In that way you can really build up solid wealth and a really solid portfolio.

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

If you look at the JSE over the last ten years in terms of price change, if you invested in a JSE tracker for example, an exchange-traded fund - the price was up by 7.5%.

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

You also had 2.5% back in dividends. That means just over 25% of your total return... per annum over the ten years... came from dividends.

Chantal Marx, Head of Equity Research - FNB Wealth and Investments

Listen to Marx's advice on how best to use your dividends in various scenarios:

This article first appeared on CapeTalk : How to grow money 'babies' with your dividends

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