What Are Dividends? A Beginner's Guide

Imagine you own a bakery together with other partners. At the end of the month, the bakery made a profit. You decide that part of this profit will be divided among the partners, proportionally to each one's stake. This is essentially what a dividend does in the stock market.

When a publicly traded company generates profit, it has two options: reinvest the profit into business growth or distribute part of it to shareholders as dividends. Many companies do both — reinvest some and distribute the rest.

In Brazil, legislation requires companies to distribute at least 25% of net income as dividends (unless the company's bylaws define a different percentage). This makes the Brazilian market especially attractive for dividend investors.

In the Brazilian market, there are different types of payouts you can receive:

Dividends: Share of profits distributed directly to shareholders. In Brazil, dividends are tax-exempt for individuals (as of the publication date of this article).

Interest on Equity (JCP): Similar to dividends but with different tax treatment. The company deducts JCP as a financial expense, reducing its taxable base. For the investor, there's a 15% withholding tax.

REIT distributions: Real estate investment funds distribute at least 95% of results as monthly distributions. For individuals, these are tax-exempt (as long as the fund has more than 50 shareholders and is traded on the exchange).

PaxMoney lets you track all these types of payouts, separating them by asset class and currency so you have full visibility into your passive income.

Starting to receive dividends is simpler than it seems:

1. Open a brokerage account: Choose a brokerage with good reviews and competitive fees.

2. Study the assets: Research companies and REITs with solid dividend payment histories. Don't just look at yield — evaluate the consistency and sustainability of payments.

3. Buy the assets: You don't need a lot of money. In Brazil, you can buy stocks in the fractional market (starting from 1 share) and REIT units (usually under R$100).

4. Track your dividends: Use PaxMoney to record each payment, view monthly evolution, and project your future income with AI. Batch import makes life easier for those receiving many payouts.

5. Reinvest: Consider reinvesting dividends to take advantage of compound interest. PaxMoney lets you simulate the impact of different reinvestment strategies over the long term.