Many people want to grow their money but do not know the best way to do it. Some hear about dividends and government bonds but do not fully understand how they work. These two investment options allow people to earn money without actively working for it.
Dividends come from companies that share their profits with shareholders. If you own shares in a company that pays dividends, you receive a part of its earnings regularly. On the other hand, government bonds are like a loan you give to the government. You lend money, and in return, the government pays you interest over time and gives back your money at the end of the agreed period.
Both options have their benefits and risks. This guide will explain them, so you can decide which one is best for you.
What are dividends ?
Dividends are money that companies give to their shareholders. When you buy shares in a company, you own a small part of that company. Some companies make a lot of money and decide to share part of it with their owners. This money they give to shareholders is called a dividend.
How do dividends work
When a company makes a profit, it has two choices. It can use the money to grow the business or share some of it with shareholders. If the company decides to share, it gives a dividend.
Dividends can be paid in two ways:
1. Cash dividends – The company sends money directly to your bank account.
2. Stock dividends – Instead of money, the company gives you more shares.
Most companies that pay dividends send the money every three months, but some do it once or twice a year.
Why do companies pay dividends
Companies pay dividends to make investors happy. When a company pays dividends, it shows that it is making money and doing well. People like to invest in companies that pay dividends because they get money while still owning shares.
Which companies pay dividends
Not all companies pay dividends. Some companies use all their profit to grow the business. Big, successful companies that do not need all their profit for expansion usually pay dividends. Banks, oil companies, and telecommunication companies are examples of businesses that often pay dividends.
How to Receive Dividends in Nigeria
If you want to receive dividends, you must own shares in a company that pays them. Here is how you can do it:
1. Open a stockbroking account – You need to create an account with a stockbroker.
2. Buy shares – Use your broker to buy shares of a company that pays dividends.
3. Link your bank account – Companies send dividends directly to your bank account.
Once you follow these steps, you will receive dividends whenever the company decides to pay.
How Much Dividend Can You Get
The amount you get depends on how many shares you own and how much the company is paying per share. If you own 1,000 shares and the company pays 5 naira per share, you will get:
1,000 × 5 = 5,000 naira
If you own more shares, you will get more money.
What Are Government Bonds
A government bond is a loan you give to the government. When the government needs money, it borrows from people by selling bonds. When you buy a bond, you are lending money to the government. The government promises to pay you back with interest after a certain time.
How Do Government Bonds Work
When you buy a bond, you agree to lend money to the government for a set period. During this time, the government pays you interest. At the end of the period, the government gives back your original money.
For example, if you buy a 5-year bond, the government will pay you interest every few months or every year. After 5 years, they will return your money.
Why Do People Buy Government Bonds
People buy government bonds because they are safe. The government is very unlikely to fail in paying back. Bonds are a good way to earn money without too much risk.
Types of Government Bonds in Nigeria
There are different types of government bonds in Nigeria. The most common ones include:
1. Federal government bonds: These are bonds issued by the Federal Government of Nigeria. They are very safe.
2. State government bonds: Some states in Nigeria also issue bonds to raise money.
3. Treasury bills: These are short-term bonds that last for less than a year. They pay less interest but are very safe.
How to Buy Government Bonds in Nigeria
Buying a government bond in Nigeria is simple. Here are the steps:
1. Open an account: You need to open an account with a bank or investment company.
2. Decide how much to invest: Bonds have a minimum amount, so check how much you need.
3. Buy the bond: Your bank or investment company will help you buy it.
4. Receive interest: The government will pay you interest until the bond matures.
5. Get your money back: When the bond matures, the government returns your money.
How Much Interest Can You Earn
The amount of interest depends on the type of bond. Some bonds pay 10 percent per year, while others may pay more or less. If you invest 1,000,000 naira in a bond that pays 10 percent per year, you will get:
1,000,000 × 10% = 100,000 naira per year
This interest is paid regularly until the bond matures.
Differences Between Dividends and Government Bonds
1. Dividends come from companies, but bonds come from the government.
2. Dividends are not guaranteed, but bonds have a fixed interest.
3. Dividends depend on company profit, but bonds do not.
4. Dividends are paid to shareholders, but bonds are for lenders.
5. Companies can stop paying dividends, but the government must pay bond interest.
Which is Better Dividends Or Bonds
It depends on what you want. If you want regular income and safety, bonds are better. If you want to grow your money and do not mind risk, dividends may be better.
Frequently Asked Questions About Dividends and Government Bonds
Can I lose money if I invest in dividends or government bonds?
With dividends, there is a risk because companies can stop paying if they do not make enough profit. Government bonds are much safer because the government guarantees to pay back the money with interest.
How often are dividends paid?
Most companies pay dividends every three months, but some pay once or twice a year. The exact schedule depends on the company.
How do I know if a company pays dividends?
You can check the company’s website, the stock exchange website, or ask a stockbroker. Companies that regularly pay dividends usually announce it publicly.
How much money do I need to invest in government bonds in Nigeria?
The minimum amount varies depending on the type of bond, but most federal government bonds require at least 50,000 naira.
Where can I buy government bonds in Nigeria?
You can buy government bonds through banks, licensed stockbrokers, and investment companies that deal in bonds.
Are dividends taxed in Nigeria?
Yes, dividends in Nigeria are subject to withholding tax, which is usually 10 percent of the amount paid to you.
Can I sell my government bonds before they mature?
Yes, you can sell government bonds before they reach their full term, but the price may be higher or lower depending on market conditions.
Which one is better for beginners, dividends or government bonds?
Government bonds are better for beginners because they are safer and guarantee returns. Dividends can be risky because companies do not always pay them.
See Also: Wema Bank, SMEDAN Set to Empower 800,000 Small Businesses in Nigeria
Final thoughts
Dividends and government bonds are two ways to make money. Dividends come from companies that share their profits, while bonds are loans to the government that pay interest.
If you want steady and safe income, government bonds are a good choice. If you want to own part of a company and earn when the company does well, dividends are a good choice. Understanding how both work will help you make better investment decisions.
