If you want to get rich with dividends, you first need to know what dividends actually are. As a shareholder, you take a stake in a company. That automatically ties shareholders to the company's profits as well as its losses. A gain for the shareholder is therefore often linked to a company profit. Keep in mind, though, that not every company does this. Google's parent company, for example, has never paid a dividend in its history. There is a specific reason for that. From a company's point of view, it only makes sense to pay money out to shareholders if the company has no use for the capital itself. That makes sense when a company wants to reinvest the profits it has earned. That way the firm can keep benefiting from market growth and pull in even bigger profits in the future.

Getting rich with dividends: why it doesn't always work

Unfortunately, the dividend game only works to a limited extent, because of a company's history or other factors. A good example is a firm that took out a loan to finance the business at the start. In that case the dividends are used to pay off the debt, although sometimes having debt makes sense because of the infamous leverage effect. Even if none of these criteria apply, there are still other reasons why a company doesn't pay out dividends. Often they hold on to the money to secure strategic options for later. If the company wants to move into a new market, the financial means are there and it can invest in a new business model. So whether you get rich with dividends is partly a matter of luck.

Getting rich with dividends
Getting rich with dividends

Getting rich with dividends: when it really makes sense

Now that we've explained all the reasons why companies might choose not to pay dividends, let's look at the factors that make it sensible to pay them out to shareholders.

  • The company no longer has any lucrative projects of its own to invest in.
  • For many firms, paying shareholders a dividend every year is part of good corporate conduct.
  • The company's economic strength is so high that generous payouts are possible

The size of the payout always depends on how well positioned a company currently is and how much it has set aside for a rainy day. On the day of the annual shareholders' meeting, the board makes a proposal for the amount of the dividend, and the owners of the company then vote on that proposal. So it makes perfect sense to raise the topic at such a meeting and see how many votes you can gather.