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The Dividend Investor: A practical guide to building a share portfolio designed to maximise income by Rodney Hobson

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Chapter 1. Companies and Dividends

The purpose of companies – to pay dividends

Let us be quite clear: the whole purpose of companies is to pay dividends. It goes like this:

  1. a company is set up
  2. the company makes a profit
  3. the owners share the profit
  4. we all live happily ever after.

The payment of dividends is, or should be, the raison d’être of all companies whose shares are quoted on any stock exchange. Dividends are the reward paid to shareholders who have invested their money in the business.

Yet in a sense dividends come last in the pecking order. They are funded out of what is left over after a whole range of bills and obligations have been met, such as:

  • staff wages
  • trade creditors
  • tax
  • interest and repayments on bank ...

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