What is a dividend?
Dividends are a portion of the profits distributed by a company to its shareholders from its operational earnings. In simple terms, if you hold shares, the company will distribute part of its profits to the shareholders after earning profits. Here are the common types of dividends:
- Cash Dividend: Issued in cash to shareholders’ accounts, this is the most common type.
- Stock Dividend: A company issues additional shares to shareholders, which does not immediately generate cash flow but increases the ownership ratio.
- Special Dividend: A one-time distribution of dividends by a company under special circumstances, typically sourced from asset disposal gains or surplus earnings.
For example: if a company distributes a cash dividend of 3 yuan per share and you hold 1,000 shares, then you will receive a dividend of 3,000 yuan.
What is the relationship between yield and dividends?
In financial news, you may often hear terms like “high dividend yield stocks”. Here, the dividend yield is actually the percentage obtained by dividing the dividend by the stock price:
- Dividend Yield = Annual Dividend ÷ Stock Price × 100%
For example: if a company’s stock price is 100 yuan and it distributes an annual dividend of 5 yuan, the yield is 5%. The yield helps investors assess cash flow returns, but it is important to note that a high yield does not necessarily indicate a healthy company; it may result from a sharp decline in stock price. When looking at the yield, it should be evaluated in conjunction with the stability of earnings and the overall dividend policy.
Which companies will distribute dividends on a macro level?
In traditional markets, companies that distribute stable dividends are mostly of the following types:
- Utilities
- Large financial institutions (Banks)
- Tech giants (such as Microsoft and Apple have also started paying dividends in recent years)
- High cash flow companies (such as tobacco, oil and gas)
These companies are mostly mature enterprises that no longer require large-scale capital investment for expansion, and thus return profits to shareholders.
Dividends in the Crypto World
In the Web3 world, there is no role equivalent to shareholders in a legal sense, but many protocols or projects design economic models similar to dividends to incentivize token holders. For example:
1. DeFi Profit Sharing Mechanism
- For example, SushiSwap distributes a portion of the trading fees to those who hold SUSHI.
- Protocols like GMX and dYdX will also return a portion of the platform’s revenue to governance token holders or stakers.
2. NFT Revenue Generation Mechanism
- Certain income-generating NFTs (such as game characters and virtual land) will distribute profits or rights-sharing monthly.
- Similar to StepN’s running shoe NFTs, which provided a stable daily income during peak periods, it is also a form of digital cash flow.
3. DAO Profit Sharing and Redistribution
- If a DAO has actual sources of income (e.g., Gitcoin, ENS), it may also distribute dividends to token holders or contributors through governance decisions.
These concepts of dividends on the blockchain, although not legally protected, have become an important component for Web3 investors seeking passive income.
How to design a dividend investment strategy?
Traditional Finance:
- Regularly invest in high-dividend ETFs in Taiwan and the US stock markets (e.g., 0056, VYM)
- Pay attention to the distribution period of dividends monthly, yearly, and quarterly, and plan your cash flow.
- Make good use of dividend reinvestment to amplify the effects of compound interest.
Blockchain Finance:
- Assess the revenue models and profit-sharing logic of DeFi protocols (e.g., platform revenue sharing, transaction fee mining, etc.)
- Choose tokens with long-term economic model designs to avoid bubble-like subsidies.
- Reasonable allocation of on-chain cash flow, paired with long-term assets in cold wallets.
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Summary
In a market filled with hype and narratives, investors who understand asset allocation through cash flow thinking are truly standing on the starting point for long-term profits. Dividends may not make you rich overnight, but they will accumulate over time, helping you navigate through bull and bear markets. Whether you are a traditional investing veteran or a DeFi newcomer, you should learn one thing: dividends are a friend of time and also the most stable passive income strategy.
