Michael Lee-Chin made US$30 million a year just from NCB dividends alone… so what are dividends and how can you get in on it?

One of the things to come out of this NCB Financial Group dividend saga is news that majority shareholder, Michael Lee-Chin, reportedly brought in US$30 million a year from dividends alone. Of course, that’s when NCB was actually paying dividends.

But that’s about J$4.6 billion- for doing nothing!

Now, unless you’re a majority shareholder for a very large and profitable company, I don’t think you’ll be earning that kind of money, but there are many investors who earn a very nice living by investing in dividend stocks.  I call it siddong and collect!

Let’s start at the beginning. Dividends are your share of a company’s profits once you become a shareholder.

As a shareholder, you are part owner of a company, so you are entitled to profits when the company you own does well – unless the company needs to save those profits for other reasons. 

Not all publicly listed companies pay dividends regularly, for a number of reasons. They could choose to reinvest the profits into the company so that it can make more money, save it for a big acquisition, or save for a rainy day if they believe tough times are coming.

On the other hand, some companies are what you call dividend stocks, meaning they pay dividends regularly, usually quarterly, semi-annually or annually. 

A lot of blue chip companies are like this. In Jamaica, these include Carreras, Seprod, TransJamaican Highway, and even NCB before COVID.

Investors can usually bank on these regular payments so it becomes passive income, money that you don’t have to work for. You get a cheque in the mail or a direct deposit to your bank account, for no reason other than being an owner of this company.

Now a company’s board of directors calls the shots on dividend payments. And only investors who are shareholders by the record date will be eligible to receive payment. The record date is the day a list of eligible shareholders is compiled. So you can’t come and hurry up try buy the stock just before the dividend payment.  Although people down watch those record dates, and stock prices have been known to go up right around that time.

How much you get paid comes down to two things. How many shares you have in the company and how much the board decides to pay out.

Remember that most times, dividends are coming from the companies’ profits. So, management will try to balance paying out dividends and having enough funds to reinvest in the company, save, etc.

For example, for the past couple of quarters, GraceKennedy has paid out 50 cents per share as dividends to investors.

That means that if I own 5000 shares in GK, when they pay out dividends, I’ll get J$2500, before taxes. And yes dividend payments are taxed, like I said before, it’s income. So the Government has to get their share. 

Like with all investments, not every dividend stock will be a good match for every investor based on their own risk appetite. But there are dividend stocks in every industry, so you have to do your homework on each stock and find what works best for you.

Keep in mind that companies with consistent earnings and healthy finances usually make the best dividend stocks….And that’s the bottom line.