Q&A: Why dividends count

Q. What exactly is a dividend? A. Dividends are very easy to explain. If you take a standard company with, say, a market value of 100p, generally the type of companies that we would invest in would earn about 10p, and of that 10p they have a choice; they can either pay out a dividend, which is a cheque to the shareholders, or they can keep the money and reinvest it back in the business. Generally the type of companies that we invest in would pay a dividend of roughly 4-5p out of that 10p. Q. What does the company do with the other 5p it doesn’t pay out? A. It keeps it, retains it, rei...