Shares with dividends: is it worth buying them or is it better to ignore them?

 Dividends are recurring payments to shareholders in the form of a company's profit distribution . Younger companies tend not to pay dividends because they need to reinvest earnings to continue growing at a fast pace. However, once a company reaches a certain size, its growth margin decreases in relative terms and it tends to pay dividends as well to incentivize investors to continue investing in them.

Dividend stocks, however, are often not considered as flashy or attractive as high-growth stocks, but there's no denying that they are just as, if not more, profitable for investors.

Much of the appeal of dividends is that they are almost guaranteed income, with investors not having to worry too much about stock price fluctuations given that they will receive the dividend regardless. Is the stock up 10%? However, expect a dividend. Does the share price drop 10%? Always expect your dividend, as well as assuming the share price is flat.

Of course, there are situations where a company can write off its dividend . For example, many companies in certain sectors such as civil aviation suspended the dividend during the onset of the COVID-19 pandemic. However, if you invest in companies that have historically distributed profits, don't worry too much about this problem.

Let's take an example. The Vanguard High Dividend Yield ETF has returned just over 8% per year since its founding (2006). Investing 500 euros per month in this fund, net of currency fluctuations, would have obtained the same return for 20 years and, at the end of this period, your investment would be worth over 274 thousand euros. If we assume that the current 3% dividend yield had remained constant during this period and that dividends were reinvested, your investment would rise to over € 385,000.

It is usually best to delay the payment of cash dividends until retirement, so that you have time to dial in and increase your stake in the stock that pays them. A 3% dividend yield may not be very attractive today ($ 300 per $ 10,000 worth), but once you've built up a substantial stake over the course of your career, it can be a great extra income in retirement ...

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