Dividend: The Essential Profit Distribution Mechanism and Its Application in the Crypto World

What is a dividend?

Dividends are the compensation that a company distributes to shareholders at a certain ratio from its profits, demonstrating the company’s sharing of excess profits with investors. Typically includes:

• Cash dividends: directly distributed in cash form, allowing investors to obtain cash returns immediately.
• Stock dividends: issuing additional shares of stock, which does not generate cash flow but increases the number of shares held.
• Special dividend: A one-time payment due to special financial circumstances, commonly seen in asset disposal gains or surplus profits.

Assuming a company distributes a cash dividend of 3 yuan per share, an investor holding 1,000 shares would receive a dividend of 3,000 yuan.

The relationship between dividends and yield.

The yield represents the ratio of dividends to stock price, calculated as follows:

• Yield = Annual Dividend / Stock Price × 100%

For example, if the stock price is 100 yuan and the annual dividend is 5 yuan, the yield is 5%. The yield provides investors with a standard to measure the efficiency of cash returns, but a high yield does not necessarily indicate a strong company; it may result from a decline in stock price. Therefore, it is necessary to assess it in conjunction with the company’s financial stability.

Which companies are suitable for distributing dividends?

Generally for companies that have entered a mature stage and have stable cash flow, such as:

• public utilities
• large banks and financial institutions
• More and more tech giants (such as Microsoft and Apple, which have started paying dividends in recent years)
• High cash flow industries such as tobacco and energy

These companies, due to relatively low demand for investment expansion, can return profits to shareholders.

The “dividend” model in the encryption world

Although Web3 does not have formal shareholder rights, many projects design incentive systems similar to dividends, including:

• DeFi Yield Sharing: For example, SushiSwap allocates transaction fees to users holding tokens.
• NFT revenue mechanism: Some income-generating NFT holders can receive dividends regularly, such as the sneaker NFTs in the StepN game.
• DAO Profit Distribution: Profitable DAOs can return profits to token holders or contributors through governance decisions.

This mechanism provides encryption investors with passive income opportunities similar to dividends.

How to formulate a dividend investment strategy?

• Traditional finance can choose high-dividend ETFs and use dividend reinvestment for compound growth.
• In the encryption market, focus on evaluating the yield models of DeFi and protocols, avoiding short-term bubble subsidies.
• Combine stablecoins with a long-term holding strategy to achieve risk control and stable returns.

Summary

Dividends are the friends of time assets, and a stable dividend policy helps to navigate through bull and bear markets. Whether in familiar traditional investments or in the emerging blockchain market, understanding dividends and profit distribution is the cornerstone of building long-term wealth.