𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Warren Buffett, probably the best investor who ever lived and certainly one of the richest, has never paid a dividend to investors in his $1 trillion Berkshire Hathaway conglomerate.

This is not because he doesn’t have spare cash. At the moment, he is sitting on about $375bn worth (£278bn).

But while he buys shares in companies that pay regular dividends – loves them – he doesn’t think it is Berkshire’s job to pay them to its investors.

His point is that his job is – or was, as he stepped down as chief executive at the start of 2026 – to do something smart with your money, not hand it back to you because he hasn’t got any better ideas.

John D Rockefeller, the founder of Standard Oil and America’s first billionaire, had a different view. “Do you know the only thing that gives me pleasure?” he supposedly mused near the end of a storied life. “It’s to see my dividends coming in.”

Whether you see the world like Buffett or like Rockefeller might influence what companies or funds in your stocks and shares ISA you decide to buy.

What are dividends?

Dividends are a way for companies to reward investors for holding their shares, by paying out part of their profits.

UK companies typically pay an interim dividend at the half-year, then a final dividend with the full year results. Others might pay out quarterly or only annually.

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Sometimes the dividend is paid in shares but more usually it is cash, which investors can either take as an income, or reinvest by buying more shares.

Additionally, if companies are going particularly well they may pay a “special” dividend, a one-off distribution of cash.

Dan Coatsworth, head of markets at AJ Bell, said: “Dividends are an investor’s best friend. They shine in two ways – as an income stream today or as a key ingredient to supercharge returns longer term. If you don’t need the cash any time soon, reinvest dividends and you’ll increase your ownership of a share or fund without having to put your hand in your pocket. Over time, reinvesting is the secret sauce to enjoy the benefits of compounding. Companies that pay dividends are often financially strong and shareholder friendly – exactly what you want from investing.”

Dividends can be very valuable ways of growing your wealth, especially given the power of compounding.

The yield is a key factor to consider here. So a share that costs £100 to buy and pays a dividend of £3, has a yield of 3 per cent. By comparison, the FTSE 100 as a whole is presently yielding 3.3 per cent.

A company or index yield should never be the only reason you invest in it, however.

What is the alternative?

You could decide that you are more interested in shares that are likely to rise in price, rather than those which pay a solid dividend. This is at the heart of the growth vs income debate.

Growth stocks are often new companies, perhaps involved in a new technology, say AI or a new form of energy. These companies may not be looking to pay a dividend at least in the early days, they want the cash they have to pay for developing the business.

But if investors believe in the company story, the shares could rise on the expectation that this will one day be a highly valuable business making lots of profits.

Funds that invest in a basket of companies often market themselves as either offering “growth” or “income”.

What types of companies pay dividends?

Many different sorts of companies pay dividends. The question is: Do you want a fund that is chasing shares that may not throw off much cash, but which seem quite likely to increase in value?

Or do you want steady-as-she goes giants that will always pay off a cash dividend to be taken as income, or reinvested, almost whatever the financial weather?

Dan Moczulski, UK managing director at eToro, said: “You probably shouldn’t think about dividends in an ISA as something to ditch or chase in isolation. For most long-term investors, the more important question is total return and how much an investment grows overall through a combination of income and capital appreciation.”

If you or your fund manager pick well, you can get both in the same stock. Apple, a long-term star stock performer, has has paid a dividend for the last 14 years and increased it each year, for example.

Legal & General, the insurer, is paying a much larger dividend yield of 8 per cent. But over the last five years the shares themselves are down 7 per cent. Over that period, it has been better as a dividend stock than a growth stock.

“A high yield on its own is not necessarily a sign of quality, and focusing too heavily on income can mean missing faster-growing companies that reinvest profits rather than pay them out,” Moczulski adds.

“For many non-expert investors, diversification matters more than choosing between income and growth as a binary. A balanced portfolio can contain both, depending on someone’s goals, time horizon and attitude to risk.”

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.