An investor gets 2 forms of return from share investing – dividends and capital appreciation when the share price rises. We take a look at dividends here.
If you are a retiree, what kind of shares should you buy? As a retiree, you need a dependable passive source of income because you no longer have a salary. You also cannot take on high risks because unlike a young investor, you do not have a long horizon to recover any loss.
Shares with a steady dividend payout suit that investment profile. These are typically blue chip stocks which are market leaders in matured industries. Some companies like TM have stated their dividend policy of how much they will pay out as dividends from yearly profits. They can do that because they do not need to invest aggressively or unexpectedly. Young companies on the other hand need most of their cash to be reinvested.
Look also at the dividend yield of the company. This is dividend divided by the current share price. This ratio changes as the share price changes. A 5% dividend yield means the dividend paid is 5% of the current share price. So assuming the company’s situation does not vary in the future, you can expect a return of 5% from buying the share.