I try understand this game and had quests ofcourse. First will gona be about dividends. If you buy 200 shares for 1£ each that cost you 200£ with that shares you can get 1£ dividend monthly. So it’s 12£ per year. It gona take 20 years to get back 200£ with what you buying shares. I understand you can buy more with dividend money and not take it out. Probably cut therm for some years. But can someone explain me how it’s happen? How you earn really money from that? Or biggest point is still buy cheap and sell them?
It might be worth rewording your question into a couple of key bullet points
With the example you use you get £12 dividends a year but you can reinvest that but you also keep the original shares that were worth £200 (And hopefully they grow as well as you get dividends)
There is no single rule on the best way to make money from stocks but there are lots of guides and even an investing for beginners section on this forum
This thread on compounding your returns over the long term seems to be what your query is getting at. So I recommend you check it out.
Reinvesting dividends once fractional shares are available or buying an accumulating ETF will compound your returns. The snowball effect.
£12 divi from £200 of shares is 6%
Using the rule of 72 if you reinvest the dividends you would have £400 of shares in 12 years
If you want to live off dividends, you just need to buy lots of shares. So many that 6% (or whatever the rate is) gives you enough money to live off.
So you need a ton of money up-front to make it work, but then your reward is getting money for doing absolutely nothing.
And don’t forget, you’re not “getting back” your principle. You never lost it. Hopefully the value of your shares doesn’t go down too much, which means you can sell at any point and get your starting capital back. On top of that you benefited from the dividends in the mean time.
The alternative strategy is going for “growth” stocks, where you just want to buy low and sell high (in the distant future).
Really, unless you have a particular need for income right now, you don’t much care if you get lots of dividends or not. The total value increase over time is what you want. That means investing in solid companies that are going to grow and stay alive for decades.
If they’re not paying you dividends, the money they earn is hopefully going back in to the business, increasing its value, which should increase its stock price, which makes your shares worth more when it comes time to sell.
That is if you view your dividend as a “static” dividend. However, if you invest in companies that are increasing their dividends 3-4% above inflation year on year and reinvest the dividends. Your yield on cost will start to increase every year. By year 20, your yield on cost could be 20%-25% per year. £100K invested at year 0 would be earning £20K-£25K per year by year 20.
There is a reason that Einstein called compounding the eight wonder of the world.
Ha ha from place I come 100k£ you can earn if you work full time 50 years I thinking about small investments. But i understand what you mean. Thanks for example.
A better example. These guys started small. I’ve been following them since day 1 - Dividend Income - Dividend Diplomats
And how about company who pay out dividend monthly? I can’t find info
There aren’t many at the moment but we’ve listed a few here: Monthly paying dividend stocks in the UK?