What is the difference between making money from dividends and making money from selling shares?
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
Imagine you are Mr. Emeka, a hardworking mechanic in Abakaliki who loves investing his money wisely. Now let's talk about how investors make money through dividends and capital gains, Mr. Emeka style!So, Mr. Emeka, let's start with dividends. Dividends are like the extra meat or fish Mama Ngozi someRead more
Imagine you are Mr. Emeka, a hardworking mechanic in Abakaliki who loves investing his money wisely. Now let’s talk about how investors make money through dividends and capital gains, Mr. Emeka style!
So, Mr. Emeka, let’s start with dividends. Dividends are like the extra meat or fish Mama Ngozi sometimes adds to your plate of garri to make it sweeter. When you own shares in a company and they make a profit, they share a portion of that profit with you as dividends. It’s like a little reward for being a loyal shareholder. You can use this extra money for your daily needs, like buying more tools for your workshop or even saving up for a rainy day.
Now, onto capital gains. Capital gains are like when you buy a second-hand car, fix it up, and later sell it for a higher price. When you invest in shares, the value of those shares can increase over time. If you sell your shares for more than you paid for them, the profit you make is called a capital gain. This means your initial investment has grown, just like a seed you planted in your backyard that has now grown into a big, fruit-bearing tree.
So, Mr. Emeka, the key difference is that dividends are like getting small treats along the way, while capital gains are like seeing your initial investment grow into something bigger when you sell your shares for a profit. Both dividends and capital gains are ways for you to make money from your investments, helping you secure your financial future as a hardworking mechanic in Abakaliki.
Keep your eyes open for opportunities to earn both dividends and capital gains in your investment journey, Mr. Emeka! Remember, just like fixing a car engine, investing requires patience and a keen eye for opportunities. Happy investing!
See less1 Dividends This is money a company pays you from its profit You get paid while still holding the shares Usually paid yearly or quarterly Good for passive income 2 Capital Gains This is profit you make when you sell shares higher than you bought them Example buy at 10 naira sell at 15 naira you makeRead more
1 Dividends
This is money a company pays you from its profit
You get paid while still holding the shares
Usually paid yearly or quarterly
Good for passive income
2 Capital Gains
This is profit you make when you sell shares higher than you bought them
Example buy at 10 naira sell at 15 naira you make 5 naira gain
You only get money when you sell
3 Key difference
Dividends pay you regularly without selling
Capital gains pay you once when you sell at a profit
4 Bottom line
See lessSome investors want dividends for steady cash
Some want capital gains for growth
Many do both hold shares for dividends and sell later for gains
by ROI
by ROI
See lessThe key difference is where your return comes from. Method How you make money What happens to your shares? Dividends The company pays you part of its profits as cash (or sometimes additional shares). You keep your shares. Selling shares You sell your shares for more than you bought them for and makeRead more
The key difference is where your return comes from.
See lessMethod
How you make money
What happens to your shares?
Dividends
The company pays you part of its profits as cash (or sometimes additional shares).
You keep your shares.
Selling shares
You sell your shares for more than you bought them for and make a capital gain.
You give up those shares.
1. Making money from dividends
Suppose you buy 1,000 shares of a company at ₦100 each.
Your investment = ₦100,000.
If the company declares a dividend of ₦5 per share, you receive:
1,000 × ₦5 = ₦5,000 dividend
You still own your 1,000 shares.
If the company continues paying dividends, you can potentially receive income repeatedly while holding the shares.
Think of dividends as:
“I own part of the company, and the company is sharing some of its profits with me.”
2. Making money by selling shares
Using the same example, you buy 1,000 shares at ₦100 = ₦100,000.
Later, the share price rises to ₦150.
If you sell:
1,000 × ₦150 = ₦150,000
Your gross capital gain is:
₦150,000 − ₦100,000 = ₦50,000
But after selling, you no longer own those 1,000 shares.
Think of capital gains as:
“I bought the shares cheaply, their value increased, and I sold them at a higher price.”
The important difference
Imagine you own a Nigerian company for 10 years.
Dividend strategy:
You may keep your shares for the 10 years and collect dividends along the way.
Capital-gain strategy:
You may buy at ₦100, wait until the price reaches ₦200, then sell and realize your gain.
You can also do both.
For example:
Buy shares for ₦1,000,000
Receive ₦80,000 in dividends over time
Shares later become worth ₦1,400,000
Sell them for a ₦400,000 capital gain
Your total return would be approximately ₦480,000, before considering taxes, fees and other adjustments.
Which is better?
Neither is automatically better.
Dividends may be more attractive if you want:
Regular income
To remain invested for the long term
To build a portfolio that generates cash flow
Selling shares may be more attractive if you want:
To realize a large gain
Money for a specific purpose
To rebalance or exit an investment
For someone building wealth over many years, a combination of dividend income + long-term share-price growth can be powerful.
One important point: a company paying a high dividend isn’t necessarily a better investment. You should also examine its earnings, debt, profitability, growth prospects, valuation and ability to sustain the dividend.