Anyone who wants to get rich with dividends should first know 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 profit for the shareholder is therefore often linked to a company profit. Keep in mind, though, that not every company pays dividends. Google's parent company, for example, has never paid a dividend in its history. There is a particular reason for that. From a company's point of view, it only makes sense to pay money out to shareholders when the company itself has no use for the capital. That makes sense if a company wants to reinvest the profits it has earned. 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 a company that took out a loan to finance itself at the start. The dividends then serve to pay off the debt, although sometimes it even makes sense to carry debt because of the notorious leverage effect. Even if none of these criteria apply, there are still other reasons a company doesn't pay out dividends. Often companies hold dividends back to secure strategic options for later. If another market is to be entered, the financial options are in place and the company can invest in a new business model. So whether you get rich with dividends is partly a stroke of luck as well.

Getting Rich With Dividends: When It Really Makes Sense

Now that we have explained all the reasons why companies might decide not to pay dividends, here are the factors that make it sensible to pay them out to shareholders.

  • The company itself has no more lucrative projects it could invest in.
  • For many companies, paying shareholders a dividend every year is part of good 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. On the day of the annual shareholder meeting, the board makes a proposal for the size of the dividend, and the owners of the company then decide on that proposal. So it definitely makes sense to raise the topic at such a meeting and see how many votes you can gather.