Contents
The “dividend” of stock investment is the money that a company distributes to shareholders as a return of profits. Dividends can be received by holding stocks, that is, income gains can be obtained by holding assets aimed at capital gains, so it has long been popular among stock investors as one of unearned income.
The amount of dividends that can be received per share holding varies from company to company, but there are also “high dividend stocks” with high dividend yields. Dividend-oriented investors invest in such stocks to generate new sources of income.
In that sense, investing for dividends is similar to virtual currency asset management, and some people may be concerned about the difference. Therefore, in this article, we will explain the characteristics of investing for dividends while comparing it with virtual currency asset management.
- table of contents
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- Advantages and disadvantages of investing in high dividend stocks
- Fundamentals of “dividends” to return company profits
- Compare dividends and income gains of cryptocurrency investment
- Domestic and U.S. Stocks with Attractive Dividends
- Points to note when investing for dividends
- Make an investment that suits you
1. Advantages and disadvantages of investing in high-dividend stocks
Before going into more detail about dividends, let's touch on the pros and cons of investing in high-dividend stocks that aim for dividends.
Investing in high-dividend stocks, as the name suggests, means buying and investing in the stocks of companies that pay large dividends to shareholders. It is an investment method that emphasizes income through dividends by selecting stocks that can receive high-yield dividends.
Annual dividend yields (ratio of dividends to stock price) for domestic stocks are generally around 2%, but some high-dividend stocks have annual dividend yields of over 4%. If you hold 2 million yen worth of stock with a dividend yield of 4%, you will get 80,000 yen in annual dividends. In this way, the point that you can actively aim for income gain through holding stocks is the appeal of investments that aim for dividends, including high-dividend stock investments.
High dividend stocks have the advantage of receiving more dividends than general stocks, but the disadvantage is “low growth potential”. Stock prices of companies that pay stable dividends tend to be relatively stable, so it is difficult to expect large gains.
In this way, high dividend stock investment can be said to be a suitable method for those who want to actively aim for income gain.
2. Fundamentals of “dividends” to return company profits
Next, I will explain the dividends that you should know when investing for dividends.
Dividends are cash dividends distributed to each investor on the condition that they hold shares. It is very popular as a method of obtaining “unearned income” that can be received without working.
Here, we will explain the mechanism of such dividends and the relationship between other profits obtained from stock investment and dividends.
2-1. Dividend structure
First, let me explain how dividends work.
Dividends are a system for distributing a portion of profits to shareholders according to their shareholding ratio. In the first place, a stock company collects funds by issuing shares and conducts business based on that money, so it means returning profits to the shareholders who are the investors.
However, it is not always necessary for companies to set dividends, and there are many companies that use the profits they earn for business investments. Also, the ratio of dividends to profits and the timing of paying dividends vary from company to company.
The way of thinking about this dividend has characteristics depending on the country. For example, in the case of Japanese listed companies that pay dividends, the frequency of dividends is one or two times a year, and there are few companies that are proactive about increasing dividends (increasing dividends). On the other hand, many US-listed companies pay dividends four times a year, and some of them have continued to increase their dividends for decades, suggesting that they are more conscious of shareholder returns than in Japan.
2-2. Difference between capital gain and income gain
Next, I will explain the two types of profits that can be obtained by investing in stocks.
The profit obtained from investment is divided into “capital gain” and “income gain”, and the same is true for stock investment. The following table introduces what capital gains and income gains generally mean and what they mean in stock investments.
| item | general meaning | Example in stock investment |
|---|---|---|
| Capital gain | Profit from the sale of an asset that has appreciated in value. | Capital gains on stock holdings. |
| income gain | Profit obtained by holding assets. | Dividends and shareholder benefits. |
It is very important to consider the total return when investing, not just in stock investment. For example, no matter how high the dividend yield of a stock is, it is not uncommon for the loss on sale to be large due to a significant decline in the stock price, resulting in a loss that exceeds the profit earned from the dividend.
Even if you are investing for dividends, it is necessary to select stocks that are expected to maintain or rise in stock price.
2-3. Differences between dividends and shareholder benefits
As introduced in the table in the previous chapter, not only dividends but also “shareholder benefits” are income gains for stock investment. Both are similar in that they can earn profits through stock holdings, but shareholder benefits differ in the content of profits.
As previously mentioned, it is cash (or cash equivalents) that is distributed as dividends. On the other hand, there are various types of shareholder benefits, such as food, discount coupons, and products of investee companies.
There are also companies that offer unique shareholder benefits. For example, FISCO Ltd. includes FSCC (Fisco Coin), a virtual currency issued by the company, in its lineup of shareholder benefits.
Since shareholder benefits can be received separately from dividends, it is a good idea to refer to the details of the benefits when selecting high-dividend stock investments.
3. Comparing Dividends and Income Gains of Virtual Currency Investments
As introduced at the beginning, dividends are the main income gain in stock investment. Next, I will explain the characteristics of each while comparing the difference between dividends and income gains of virtual currency investment.
3-1. Mechanism
First of all, I will introduce again the mechanism of the three main income gains obtained by investing in virtual currency.
| item | overview | Mechanism for receiving rewards |
|---|---|---|
| Lending | Lend virtual currency to companies that want to borrow virtual currency. | The lender (investor) continues to receive the interest paid by the borrower. |
| staking | Deposit virtual currency for a certain period of time and contribute to network maintenance and transaction approval. | Deposited users will receive a return from part of the network usage fee. |
| yield farming | Provide virtual currency to the “liquidity pool” used to exchange virtual currency. | The provider receives a portion of the exchange fee and the like. |
Even with the same virtual currency investment income gain, you can see that the mechanism differs depending on the service you use. Also, the dividend structure is different.
However, both of them have in common that the profit obtained by using a specific service is shared.
3-2. Flexibility
Next, let's compare the income gains of stocks and virtual currencies in terms of flexibility.
In order to receive dividends, you must continue to hold the stock until a certain date called the “profit taking date” that occurs once or twice a year. Conversely, if you do not hold the stock until the profit settlement date, you will not receive the dividend. In addition, the timing of receipt is two to three months after the date of profit taking, and investors cannot change the schedule.
On the other hand, there are many types of virtual currency income gains, such as those that can be received in a few months or days, and those that can be received every day and can be withdrawn freely, so investors can choose what they like.
Therefore, when comparing dividends and income gains from cryptocurrency investments, the latter is more flexible.
3-3. Solidity/Risk
Let's also compare from the perspective of solidity and risk, which are important when choosing an investment method.
The risks of investing in dividends include “dividend reduction (dividend amount reduction)” and “no dividend (dividend suspension)”, and the value of the stocks themselves decreases due to a decline in stock prices.
However, in terms of risk, it can be said that virtual currency investment is higher. In order to efficiently acquire income gains, it is necessary to consider long-term operation, but since the cryptocurrency market is not yet fully mature, cryptocurrency prices fluctuate greatly, and there is no risk of the token price crashing during operation. I cannot deny it.
It can be said that it is a stock investment aimed at dividends that can earn income gain more steadily.
3-4. Tax rate
In investing, it is very important how much profit is left in the end.
So let's compare the tax rates for both. The applicable tax rates excluding special income tax for reconstruction are as follows.
| item | Applicable tax rate |
|---|---|
| Dividends on domestic stocks | Basically about 20% (income tax 15%, resident tax 5%) |
| Dividends on foreign stocks | After being withheld in the country where the market is located, an additional domestic tax of approximately 20%.
However, if you apply the “foreign tax credit” by filing a final tax return, you can deduct the tax amount generated overseas from the tax amount generated in Japan. |
| Income gain of virtual currency investment | 15% to 55% (Income tax 5% to 45%, Resident tax 10%) |
In many cases, the tax rate on dividends is more favorable than the tax rate on profits from cryptocurrency investments, depending on whether it is a domestic or foreign stock.
In addition, it is possible to reduce the tax amount further by utilizing the tax incentive system for stock investment. For example, if you buy stocks with a NISA account, the Japanese tax rate will not apply to dividends. After January 2024, the NISA will be made permanent and expanded, and the dividend advantage in terms of tax rates will increase.
To summarize the comparison in this chapter, it can be said that virtual currency asset management is a slightly risky but highly flexible method, and investment aimed at dividends is a more solid method.
4. Domestic and US stocks with attractive dividends
So far, we have explained the outline of dividends and the characteristics of dividends when compared to virtual currency income gain, but in this chapter, we will specifically introduce stocks with attractive dividends.
4-1. Domestic stocks
First of all, I will list two stocks with attractive dividends among domestic stocks.
The stock of Japan Tobacco Inc. is attracting attention for its high dividend yield. The dividend yield of Japan Tobacco's shares has remained at a very high level of 5% or more over the past five years, and is expected to be 7% or more in FY2022.
The stock price and dividend trends for the period up to February 2023 are as follows.
| year | Dividend per share |
|---|---|
| 2020 | 154 yen |
| 2021 | 140 yen |
| 2022 | 188 yen (forecast) |
Source: Japan Tobacco Inc.
Next, we will introduce the stock of “KDDI Corporation”, which has been increasing its dividend for 20 consecutive years. The dividend yield of KDDI stock has remained above 3% for the past five years. In addition, the stock price has been rising steadily, and if you had purchased the stock several years ago, you would have been able to enjoy the gains from the price increase at the same time.
The stock price and dividend trends for the period up to February 2023 are as follows.
| year | Dividend per share |
|---|---|
| 2020 | 120 yen |
| 2021 | 125 yen |
| 2022 | 135 yen (forecast) |
Source: KDDI Corporation
4-2. US Stocks
US stocks have multiple stocks with attractive dividend conditions.
One US stock with attractive dividends is the stock of petrochemical maker Exxon Mobil Corporation. Dividend yields over the last five years have all been above 3%, and the dividend continues to increase.
The stock price and dividend trends for the period up to February 2023 are as follows.
| year | Dividend per share |
|---|---|
| 2020 | $3.48 |
| 2021 | $3.49 |
| 2022 | $3.55 |
Source: Exxon Mobil Corporation.
Next is the stock of “The Coca-Cola Company.”
Coca-Cola shares are characterized by relatively stable prices. In order to efficiently obtain income gain through dividends, it is necessary to select stocks in anticipation of long-term holdings. In addition, the dividend yield over the past five years has been in the high 2% to low 3% range, and the amount of dividends has also been maintained at a moderate level.
The stock price and dividend trends for the period up to February 2023 are as follows.
| year | Dividend per share |
|---|---|
| 2020 | $1.64 |
| 2021 | $1.68 |
| 2022 | $1.76 |
Source: The Coca-Cola Company.
In addition to the stocks mentioned in this chapter, there are attractive high-dividend stocks. Use online securities and financial information sites to find stocks that suit you.
5. Points to note when investing for dividends
Dividends are received on a regular basis just by holding stocks, so it is often said that the degree of difficulty is not high compared to short-term trading, but there are caveats.
5-1. Only shareholders can receive it on the profit record date
Dividends are distributed to shareholders as of the “profit record date”. Therefore, if you want to start investing with the aim of paying dividends, check the profit record date of the investee company and make an investment plan that does not fail to receive dividends.
You can check the profit taking date on the official website of the company.
5-2. Select stocks by considering the company’s financial base, etc.
When choosing investment stocks, it is necessary to check not only the high dividend yield but also the financial base of the company.
As mentioned above, stock investment aiming for dividends is basically based on long-term holding.
And if earnings are not stable, we cannot continue to pay dividends. Therefore, when selecting stocks, check not only the temporary high dividend yield, but also the stability of the financial base, performance, and EPS (earnings per share).
5-3. Diversification is key to get stable income gain
No matter how carefully you research and select stocks, unforeseen circumstances can lead to sluggish performance. Therefore, if you aim for stable income gain, it is important to diversify your investment destinations.
When diversifying investment destinations, it is basic to place them in a well-balanced manner so that stocks are not concentrated in a specific industry sector.
Another option is to invest in ETFs (Exchange Traded Funds) that track high-dividend stocks as a way to easily secure diversification and obtain income gains. With ETFs, you can diversify your investment in multiple stocks just by holding one stock, and you can receive regular “dividends” through your holdings.
As an example, the composition ratio of the ETF “SPYD”, which is known for its high yield and is linked to the S&P500 High Dividend Index, is shown below. You can see that the investment industry is diversified.
Owning a high-dividend stock ETF like SPYD can easily provide similar benefits to a diversified investment in high-dividend stocks.
6. Make investments that suit you
In this article, I explained about stock investment aiming for dividends, which can aim for income gain of 2-3% every year. If you invest a certain amount of money, you can earn a steady income gain through holding it, so if you have enough money, it's worth considering.
There are many other ways to invest in addition to dividends. Reserve investments in index funds over a span of several decades and value stock investments targeting undervalued stocks are one of them. Each investment method has its own characteristics, so even if you feel that investing for dividends is not suitable, you may find an investment method that suits you if you look for it.
Dividends are high-dividend stocks and aim for an annual income gain of 2-3% Our Bitcoin News.