Unit 5 · Level 3 · Stocks Deep-Dive
Dividends: getting paid to hold
Dividends are profit paid out to shareholders, usually quarterly. A €100 stock paying €3/year yields 3%. Reinvested dividends buy more shares, which pay more dividends, which buy more shares. That compounding loop quietly drove a huge share of the stock market's historical returns.
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What you get asked
Why doesn't a high dividend yield automatically mean a great buy?
A crashing PRICE inflates the yield right before the dividend gets cut. The 'yield trap': a 12% yield is often a 50%-crashed stock whose payout is about to die. Check whether EARNINGS comfortably cover the dividend before trusting the number.
Match the dividend term to its meaning
A payout ratio near 100% means no cushion: one bad year and the dividend's on the chopping block.
Growth companies (early Amazon, most tech) often pay NO dividend. Why isn't that stinginess?
Shareholders get price appreciation instead. Dividend vs growth is capital allocation, not virtue. Mature cash-cows pay out; growers plow back. Both can reward owners, just differently.
On the ex-dividend date, the stock price typically ___ by roughly the dividend amount.
No free lunch: the cash leaving the company leaves the price. 'Buy just for the dividend, sell after' is a strategy that nets ≈ zero, minus fees, and you know about those.
Where do dividends fit a core-and-satellite investor?
The reinvestment loop rewards exactly the behavior you're best at now: patience, consistency, and letting math work. 🐜
The rest of this unit
ETFs, sectors, dividends and earnings season, plus the League 3 graduation.