Reinvesting Company Dividend Payments for Long-Term Wealth
Artikel ini juga tersedia dalam Bahasa Melayu
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Usually, people wait for dividends every 3 months or once a year.
Rarely do we hear of people reinvesting the dividends paid by a company.
If the dividend is only 1.25% like Tabung Haji, it does not seem worth reinvesting.
But if the dividend is 100%, now that is a different story!
During our childhood, we were taught to save in Tabung Haji because of its high dividends.
But in reality, we were not exposed early on to other companies that can offer returns far higher than Tabung Haji.
Whether you realise it or not, there are several companies that provide dividend returns of over 20% and above.
One of the most profitable investment fundamentals is earning high dividends from a company.
Only companies with strong performance will increase their dividend payments year after year.
New investors may not be familiar with dividends, how dividends work, and how stock investments can add an income stream to their bank accounts.
If you want high dividend returns, you need to learn about stocks.
With stock knowledge, you can determine whether a company''s dividend value is high or low.
Who would not be happy receiving 30-50% dividends every year?
You can use those dividends to add assets, buy a new house, purchase a luxury car, go travelling, and more.
Companies that profit from their business will share a portion with stock investors in the form of dividends.
The more successful a company becomes, the greater the dividend value you will receive.
In short, dividend values are determined during meetings of the board of directors together with management.
During these meetings, they decide on specific amounts from profits to reinvest, to pay off company debts, to purchase shares, and other purposes.
When buying shares, check how much dividend the company offers. If the dividend is high, it means the company has a strong foundation to grow its business as it can afford to offer high dividends.
The company''s profit growth rate, which may be used to build future dividend increases
This is important — without knowing a company''s growth, you cannot predict whether it can pay dividends consistently.
When looking at dividends, do not forget to examine the company''s balance sheet. If there are many debts to pay and sales are low, the company may not be able to deliver the returns stated.
Lastly, consider how much tax is imposed on dividends. The higher the tax, the lower the actual dividend payout from the company.
Successful investing starts with solid knowledge.
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A DRP allows investors to use dividends received to purchase additional shares of the same company, rather than receiving cash. This leverages the power of compound interest — the more shares you own, the greater the dividends you receive in the future.
Look at dividend yield (dividend percentage relative to share price), dividend payment consistency over 5-10 years, the company''s profit growth rate, and balance sheet strength. Companies with low debt and strong cash flow are more likely to maintain consistent dividends.
Generally, a dividend yield exceeding 4-5% is considered attractive on Bursa Malaysia. However, yields that are too high (exceeding 8-10%) should be scrutinised as they may indicate a falling share price or unsustainable dividends. Quality and consistency of dividends are more important than yield alone.
Since the single-tier tax system was introduced, dividends received by individual shareholders in Malaysia are tax-exempt. This means the dividends you receive are net income without tax deductions — making dividend stocks an efficient source of passive income from a tax perspective.
Dividend investing is a proven strategy for building long-term passive income — and reinvesting dividends accelerates wealth growth through the power of compound interest.
Open a CDS account to start investing in dividend stocks on Bursa Malaysia.
Download the free stock basics ebook to understand how to choose quality dividend stocks.
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