The New Year's Eve dinner's "Yearly Abundance of Fish" and the dividend investment's "Yearly Surplus"

No matter how great the differences in customs between the North and South, I believe that every household’s New Year’s Eve dinner has one dish that is universally present and absolutely indispensable—fish.

Why must we eat fish? It’s all about good luck words: “Every year there is surplus.”

People’s wishes are simple: after a busy year, aside from eating and dressing well, having some extra money left over—that’s what we call good days.

Actually, in the world of investing, the dividend index is also a powerful helper that can help us realize the wish of “having surplus every year.” Today, using this “fish,” let’s talk about the listed companies behind the dividend index—what skills do they rely on to keep paying shareholders year after year without interruption?

1. Only when the “granary” is full at home can there be “surplus” every year

Many friends may wonder: “These companies pay so much money to us every year—won’t they deplete their reserves? Will there be anything left next year?”

This involves a core characteristic of the dividend index component stocks: Intrinsic growth capability.

The companies selected for the dividend index are mostly mature, high-quality enterprises. They are like experienced, skillful old-brand shops. Their ability to maintain high dividends consistently usually relies on two “secret weapons”:

Profits are growing (the cake is getting bigger): The company’s business is stable, earning more and more each year.

Chart: Taking the CSI Dividend Index as an example, its constituent stocks’ profits have maintained long-term growth

Data source: Wind, as of 2024 annual report

Dividend payout ratio is increasing (being more generous): Previously earning 100 yuan and paying 30 yuan in dividends, now earning 120 yuan and willing to pay 50 yuan.

Chart: The dividend payout ratio of the CSI Dividend Index is generally increasing, becoming more “generous”

Data source: Wind, as of 2024 annual report

This explains a technical concern many people have: if the dividend index rises and the stock price increases, will the dividend yield (dividends/stock price) decrease?

The answer is: not necessarily.

If the stock price rises by 10%, but the company’s performance is good and dividends also increase by 10% or more, then the dividend yield can still stay high. That’s the charm of excellent dividend stocks—they are not just sitting and eating the mountain, but growing along with the company, allowing shareholders’ “surplus money” to rise with the water.

2. Not relying on one person to give red envelopes, but relying on the whole family’s blessing

Of course, doing business always involves risks. Even the best companies cannot guarantee their performance will always go upward every year. What if a company has a bad year and can’t pay dividends?

This is where the power of index investing shows.

Buying individual stocks is like relying on one wealthy uncle to give you a red envelope during the New Year. If this year the uncle’s business suffers losses or he’s simply in a bad mood and doesn’t give anything, your “income” for the year drops to zero, and the year becomes tight.

But investing in dividend indices is like having a large “family fund.”

Products like the CSI Dividend Index, through scientific rules, allocate an average of about 100 high-dividend companies from various industries, weighted by dividend yield, avoiding over-concentration in a few companies.

Banks earn interest and share it with you;

Coal companies earn money and share it with you;

Highways collect tolls and share them with you.

This is called diversification.

In this big basket, even if three or five companies stumble this year, with declining performance and reduced or no dividends, the impact on the entire index is minimal. Because over 90 other companies are diligently earning for you.

Chart: The proportion of dividend-paying companies in the dividend index component stocks is generally over 90%

Data source: Wind, as of 2024 dividend situation

According to historical statistics, the proportion of companies in the dividend index that actually pay cash dividends has remained above 90% for many years. This is a very high ratio, meaning what you buy is not just a few stocks, but a “highly certain” dividend portfolio.

3. The goal is the “surplus” itself, not just a single “fish”

Investing in dividend indices is essentially investing in a “business model” and “investment strategy.”

The core of this strategy is: I don’t gamble on which company will become the next stock king; I only trust those companies willing to share real cash with shareholders, which are likely to outperform the market.

Through index funds, we avoid the “black swan” risks of individual companies (such as financial fraud, management upheaval), as well as cyclical risks of single industries. No matter how the market changes, as long as China’s economy keeps running and these 100 leading companies remain profitable, your account will continuously receive that “surplus every year” return.

In the Year of the Horse, investors may find that by allocating to dividend indices, they can embrace high-quality assets that can withstand cycles and continuously create value. Let dividends be like that fish on the New Year’s dinner table—perhaps not the most expensive, but the most enduring and sincere companionship.