Most people have heard of shares. They know that buying shares means owning a piece of a company. They may have heard of people “playing the stock market” or receiving dividends. But for many, the actual mechanics remain unclear. How do you actually make money from shares? What is a dividend, and where does it come from?
This article explains the basics of dividends and share investing in plain language. It is written for the ordinary Ghanaian who wants to understand how the stock market works, how investors earn returns, and what it means to own a share in a company.
No investment is guaranteed, and this article does not promise returns. But understanding the fundamentals is the first step toward making informed decisions.
Quick Facts
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A share is a unit of ownership in a company.
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Shareholders can make money in two main ways: through dividends and through capital gains.
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A dividend is a portion of a company’s profits paid out to shareholders.
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Not all companies pay dividends. Some reinvest all profits back into the business.
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Capital gains occur when you sell a share for more than you paid for it.
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Share prices can rise or fall, meaning investors can also lose money.
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In Ghana, shares are traded on the Ghana Stock Exchange.
What a Share Is
A share is a unit of ownership in a company. When you buy a share, you become a part-owner of that company. If the company has issued one million shares and you own one thousand of them, you own 0.1% of the company.
Ownership brings certain rights. Shareholders can vote on important matters, such as the appointment of directors. They are entitled to a share of the company’s profits, if those profits are distributed. And they can benefit if the value of the company rises.
Shares are sometimes called stocks or equities. In practice, the terms are used interchangeably.
How Investors Make Money From Shares
There are two main ways to make money from shares.
Capital Gains
A capital gain occurs when you sell a share for more than you paid for it. If you buy a share at GH₵5 and sell it at GH₵7, you have made a capital gain of GH₵2 per share.
Capital gains depend on the share price. Share prices are determined by supply and demand on the stock exchange. If investors believe a company will grow and become more profitable, they are willing to pay more for its shares, pushing the price up. If investors lose confidence, the price falls.
Capital gains are not guaranteed. Share prices can and do fall. You can lose money if you sell for less than you paid.
Dividends
A dividend is a portion of a company’s profits paid to shareholders. When a company makes money, it can either reinvest the profits into the business or distribute some of them to shareholders. The portion distributed is the dividend.
Dividends are usually paid in cash, though they can sometimes be paid in additional shares. They are typically paid on a regular schedule — annually, semi-annually, or quarterly, depending on the company.
Dividends provide a stream of income to investors, separate from whatever happens to the share price.
How Dividends Work
Where Dividends Come From
Dividends come from a company’s profits. A company that makes no profit generally cannot pay a dividend, unless it has accumulated reserves from previous years.
After a company earns a profit, its board of directors decides what to do with it. The board may decide to:
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Reinvest all the profits into the business to fund growth
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Pay out a portion as dividends and reinvest the rest
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Pay out all profits as dividends, if the company does not need the cash
The decision depends on the company’s strategy, its cash position, and its growth prospects.
The Dividend Decision
The board of directors has discretion over dividends. A company is not legally required to pay a dividend, even if it is profitable. Some companies — especially young, fast-growing ones — prefer to reinvest all profits and pay no dividend at all.
Other companies — often mature, stable businesses — pay regular dividends to reward shareholders and signal financial health.
The Dividend Yield
The dividend yield is a measure of how much income a share generates relative to its price. It is calculated by dividing the annual dividend per share by the share price.
If a company pays GH₵0.50 per share in dividends over a year, and the share price is GH₵10, the dividend yield is 5%.
The yield helps investors compare the income from different shares, or compare shares with other income-generating investments such as treasury bills or fixed deposits.
The Payment Process
Dividends follow a set process.
The board declares a dividend, announcing the amount and the key dates. The ex-dividend date is the date on or after which a buyer of the share is not entitled to the declared dividend. The record date is the date on which the company checks its register to see who is entitled to receive the dividend. The payment date is when the money is actually paid.
Investors who hold shares on the record date receive the dividend, even if they bought the shares shortly before.
Dividends vs Capital Gains: What Matters More?
The answer depends on the investor’s goals.
Income-focused investors prefer dividends. They want a regular stream of cash from their investments. Retirees, for example, may rely on dividends to cover living expenses.
Growth-focused investors prefer capital gains. They want the share price to rise over time, and they are less concerned with regular income. They may even prefer companies that do not pay dividends but reinvest everything to grow faster.
Most investors benefit from a combination of both. A company that pays a modest dividend and also grows its share price offers both income and appreciation.
How Share Prices Are Determined
Share prices are set by the market. On the Ghana Stock Exchange, buyers and sellers place orders, and the price moves based on supply and demand.
Many factors affect the price:
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The company’s profits and prospects
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The state of the economy
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Interest rates and inflation
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Investor sentiment
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News and events affecting the company or its industry
In the short term, prices can be volatile. In the long term, prices tend to reflect the underlying value and profitability of the company.
The Risks of Share Investing
Shares are not risk-free.
Price Risk
Share prices can fall. A company that performs poorly, or an economy that deteriorates, can cause losses. Investors who sell at the wrong time can lose money.
Dividend Risk
Dividends are not guaranteed. A company can reduce or suspend its dividend if profits fall or cash becomes tight.
Liquidity Risk
Some shares are not easily sold. If there are few buyers, an investor may struggle to sell at a fair price.
Company Risk
Individual companies can fail. A company that goes bankrupt may leave shareholders with nothing, as creditors are paid before shareholders in a liquidation.
Investing in Ghana
Ghana has a stock exchange — the Ghana Stock Exchange — where shares of listed companies are bought and sold. The exchange provides a regulated market for investors.
To invest in shares, you typically need to:
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Open a brokerage account with a licensed stockbroker
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Deposit funds
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Place an order to buy shares
Investors can also buy and sell shares through investment platforms and other licensed intermediaries.
The Ghana Stock Exchange lists companies from various sectors, including banking, manufacturing, consumer goods, and energy. Each company has its own characteristics, risks, and dividend policies.
Common Misconceptions
“Dividends are free money”
No. Dividends come from profits. They are a distribution of value, not a creation of new value. When a dividend is paid, the company’s cash decreases, and the share price often adjusts downward by the dividend amount.
“Share prices always go up in the long run”
Many shares rise over the long term, but not all do. Some companies decline or fail. Investing in shares carries real risk.
“You need a lot of money to buy shares”
You can start with a modest amount. The cost of a single share varies, and many brokers allow small investments.
“Dividends are guaranteed once a company starts paying them”
No. Dividends can be reduced or suspended. A company that pays a dividend today may not pay one tomorrow.
“Investing in shares is the same as gambling”
Speculating on short-term price movements can resemble gambling, but long-term investing is different. It involves owning productive assets that generate profits and dividends.
Frequently Asked Questions
What is the difference between a share and a bond?
A share is ownership in a company. A bond is a loan to a company or government. Shareholders benefit from profits and growth but bear more risk. Bondholders receive fixed interest payments and have priority in liquidation.
How do I know which shares to buy?
Research the company. Read its financial statements. Understand its business and its industry. Consider its dividend history and growth prospects. Seek professional advice if needed.
Can I lose all my money in shares?
If a company goes bankrupt, shareholders can lose their entire investment. Diversification — spreading your money across different companies and sectors — reduces this risk.
How often are dividends paid?
It varies. Some companies pay annually, others semi-annually or quarterly. The dividend policy is set by the board.
What is a bonus share?
A bonus share is an additional share given to existing shareholders, usually from retained earnings. It increases the number of shares but does not change the total value of the investment.
How are dividends taxed in Ghana?
The tax treatment of dividends can change. Check the current rules from the Ghana Revenue Authority or consult a tax professional.
Is the Ghana Stock Exchange safe?
The exchange is regulated, and licensed brokers operate under rules. But investing always carries risk. The safety of your investment depends on the companies you invest in and the price you pay.
What to Remember
Owning shares means owning part of a company. Investors make money in two ways: through capital gains when share prices rise, and through dividends when companies share their profits.
Dividends are not guaranteed, and share prices can fall. But over time, shares have been a way for investors to build wealth and earn income.
The key is to understand what you are buying, to diversify, and to think long-term. Shares are not a get-rich-quick scheme. They are a way to participate in the growth and profitability of real businesses.
The next time you hear about a company paying dividends or a stock price rising, you will know what it means — and what it could mean for your money.
Source: The Accra Daily Mail
Samuel Kwame Boadu is a Ghanaian media entrepreneur and storyteller with a passion for amplifying urban voices and uncovering everyday truths. He is the Editor-in-Chief and Founder of The Accra Daily Mail, a dynamic digital platform dedicated to capturing the pulse of Ghana’s capital—its people, culture, challenges, business, sports and innovations.
