Anyone who wants to get rich with dividends should first know exactly what dividends actually are. As a shareholder, you take a stake in a company. That automatically ties shareholders to a company's profits as well as its losses. A gain for the shareholder is therefore often linked to a company profit. Note, however, that not every company does this; Google's parent company, for example, has never paid a dividend in its history. There's a specific reason for that. From a company's point of view, it only makes sense to pay money to shareholders if the company itself can't do anything with the capital. That makes sense if a company wants to reinvest its earned profits. That way the firm can keep benefiting from market growth and bring in even larger profits in the future.

Getting Rich With Dividends: Why It Doesn't Always Work

Unfortunately, the dividend game is only possible to a limited extent because of a company's history or other factors. A good example is when a company took out a loan at the start to finance the business. The dividends serve to pay off the debts, although sometimes it also makes sense to have debt because of the notorious leverage effect. Even if none of these criteria apply, there are still other reasons why a company doesn't pay out its dividends. Often they hold dividends back to secure strategic options for the company later. If another market is to be entered, the financial options are there and a new business model can be invested in. So whether you get rich with dividends is partly a stroke of luck too.

Getting rich with dividends

Getting Rich With Dividends: When It Really Makes Sense

Now that we've explained all the reasons why companies might refrain from paying any out, we'll explain the factors for when it does make sense to pay some out to shareholders.

  • The company itself has no more lucrative projects in which it could invest.
  • For many firms, paying shareholders a dividend every year is part of good conduct.
  • Economic strength is so high that plenty can be paid out

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