So now you know what a stock is (if you don’t, you might wanna go check out “What The Hell Is A Stock“)

It’s time to get more into the juicy stuff.. Starting with DIVIDENDS

That’s what you’re after!!

Story Time

Remember that friend of yours? The one with the clothing store worth 1,000,000 EGP? Let’s say you actually jumped in, and now you own 50% of the business.

If that business makes 2,000,000 EGP next year, it means that technically you’re entitled to 50% of that (1,000,000 EGP)

But don’t go shopping yet, coz you might not be getting paid!

Where’s My Money?

While in fact your half of the business did generate half of the profit, and you’re entitled to it, management might have another thing in mind.

You’re friend comes in and says “I know you deserve 50% of last year’s profit, but I’m only going to pay you 10%. I will use the rest to put back into the business, so we can open up in a new location, get better quality products, and expand our brand”

I don’t know about you, but personally, I would say “Let’s go baby!!”

Think about it: Although you did not receive actual cash money, but what you will get in return is far better. Now the business you own part of is getting bigger, expanding around the city, more brand and name awareness, more clients, more sales, more profit. The business is growing.

Why wouldn’t I want my business to grow?

Let’s Dial It Back A Bit

Before getting too excited about your future, let’s go back to what we were talking about;

You received only 10% of the 50% you deserved, that’s what we call DIVIDEND.

The other 40% your friend decided to keep and re-invest in the business, that’s called RETAINED EARNINGS.

Back To The Stock Market

Take what you learned, and implement it into the stock market.

Just because TMGH announced a consolidated net profit of 14.46bn EGP last year, doesn’t mean they’re gonna spread it all around on the shareholders.

As of this moment, the total outstanding shares for TMGH is ~ 2,061,905,148 shares. Doing some basic math, if they were to spread the profit around, they would pay 7 EGP per share.

The actual Dividend paid, was only 0.25 EGP per share, with the rest going back into the business as Retained Earnings used for further business growth and expansion.

One More Thing Before You Go

Sometimes, dividends aren’t paid in the form of cash.

Instead, the company would pay you in what’s called a Stock Dividend

It’s pretty much self-explanatory, but let’s make sure you get it:

Instead of paying you with actual money, the company might decide they’re gonna give you more shares/stocks in the business.

For example, you own 100 shares in a company, they decide to pay in stock dividend instead of cash dividend. They’ll come up and say something like “This year, we’re paying 1 stock for every 5 stocks you hold”

So now, your 100 shares have become 120 shares. Congrats, you own a bigger part of the company now!

Pretty cool, right? That’s my favorite kind of dividend.

Let’s Wrap It Up

This was a lengthy one, so let’s wrap it up in a single sentence:

DIVIDEND is the profit share you actually get paid by the company, not your total percentage of the company’s profit for the year.

RETAINED EARNING is percentage the company holds back in order to expand and grow the business.