As I mentioned, my net worth is a little bit below my goal of N6mn. I have been able to achieve this via investing in the Nigerian stock market and also taking more than a passive interest in my retirement account.
I received my first dividend last year from Intercontinental Bank for a sum of N1,200. Not impressive you might say for an investment that cost me N30,000 (i.e. N6 for 5,000 units) during the 2005 public offer.
Did I also mention a bonus issue of 983units was credited to my CSCS account apart from the dividend I received?
I remember upon receiving this dividend, I spent it on trivial things since I didn’t think it amounted to much. Since I commenced investing in stocks, I have received a total dividend of N26,397.00
Recently, I have had cause to doubt the wisdom in spending my dividend as soon as I receive it. So, I have decided to conduct a research on how dividends work.
You’ll either find this information basic or interesting depending on where you are in investments.
Dividends are monies paid out by companies to their shareholders out of their after-tax profits. Basically, if you own a share of stock in a company and they pay a N0.20k dividend, you get N0.20k. Pretty basic. In a mutual fund, you get a dividend based on the combined dividends of all stocks owned by the fund; the fund adds up all of the dividends it earns, then divides it by the number of shares of the fund outstanding.
Most countries tax dividends, but at a lower rate than normal income tax. The reason for this is that any taxes on dividends are in fact a double tax: the dividend money has already had taxes paid on it by the corporation. In Nigeria, the dividend tax also known as withholding tax is currently 10%.
In Nigeria, dividends are usually paid out once a year, interim or quarterly. Of course, interim merely means every six months, most companies quoted on the Nigerian Stock Exchange wait until the end of their annual year before declaring dividend or bonus issue. Recently, Dangote Sugar commenced quarterly dividend payment, which I understand from my research is the norm in the United States.
I could also see that a frugal investor could end up with several million in stocks and could use the dividends to cover living expenses, particularly if they focused on buying stocks that paid good dividends. This, presumably, is yet another way for your money to make money for you.
Another way for your dividend income to make money for you is by opening a savings account through which your dividends from various investments can be paid. From my findings, Intercontinental Bank Plc offers such an account for existing and prospective account holders. This special savings account has the features of a current account without C.O.T. Dividend warrants can be paid into this account. You can actually set a goal of N50,000 for reinvestment purposes.
The idea is to keep depositing your dividend warrants into this special account till you have attained your reinvestment goal and can further use the funds realized for other investments.