How Much Do Shareholders Make?

Are shareholders really making as much as they think?
It’s a question that often gets lost amid corporate board meetings, annual reports, and earnings calls. But the truth is, the amount shareholders make depends on a complex web of factors, including company profitability, market fluctuations, and the specific types of shares they hold. Whether you’re a small investor with a few shares or a major institutional investor, the dynamics can be surprising.

Imagine you’ve invested in a company that’s showing consistent growth—your excitement builds as the stock price rises. You start daydreaming about those quarterly dividends or the capital gains you’ll get when you sell. But here’s the twist: not all shareholders make the same amount, even if they own the same percentage of the company. Sounds confusing? Let’s dig into why that happens.

The Role of Dividends and Capital Gains

The two main ways shareholders make money are through dividends and capital gains. Dividends are a portion of the company's earnings paid out to shareholders, while capital gains come from selling shares for a higher price than what you originally paid.

Here's the kicker: not all companies pay dividends. And those that do, don’t always pay them regularly or in large amounts. Tech companies, for example, often reinvest profits back into growth rather than distributing them to shareholders. So if you own shares in such a company, your earnings will largely depend on capital gains, which means you have to wait for the right time to sell your shares—assuming the stock price keeps going up.

But there’s more: capital gains are taxed differently than dividends. In many countries, long-term capital gains (on assets held for more than a year) are taxed at a lower rate than short-term gains, making holding onto your shares for a longer period potentially more lucrative.

Preferred vs. Common Shareholders: Who Makes More?

Not all shareholders are created equal. Common shareholders typically have voting rights, meaning they can have a say in company decisions. Preferred shareholders, on the other hand, don’t get to vote but often receive higher dividend payouts and get paid out before common shareholders if the company liquidates.

Here’s where it gets interesting: preferred shareholders often earn more from dividends but don’t benefit as much from stock price increases. Common shareholders, on the other hand, can potentially make more money if the company’s stock price skyrockets, though they bear more risk.

Imagine two people owning equal shares in a company—one has common shares, and the other has preferred shares. The company goes through a tough year, but manages to pay out dividends. The preferred shareholder gets their payout, but the common shareholder might get nothing. However, if the company’s stock price doubles the following year, the common shareholder stands to make a significant profit, while the preferred shareholder’s earnings remain stable.

The Impact of Company Performance on Shareholder Earnings

It seems obvious—the better a company performs, the more its shareholders make. But there are nuances to this. In a boom period, when a company is performing well and growing, share prices tend to rise, increasing the capital gains potential for shareholders. But in slower periods or during a downturn, dividends may be cut, and share prices can fall, eroding the value of your investment.

That said, long-term investors often benefit from staying the course, riding out the market’s ups and downs. Over time, stock prices tend to recover, and dividends may increase as the company stabilizes or grows.

Stock Buybacks: An Underrated Profit Channel

One factor many new investors overlook is the role of stock buybacks. When a company repurchases its shares, the total number of shares available in the market decreases. This means that the earnings of the company are spread over fewer shares, potentially increasing the earnings per share (EPS), which can drive up the stock price.

While buybacks don’t directly put money into shareholders’ pockets like dividends do, they can lead to higher stock prices, which benefits anyone holding the stock. However, it’s important to note that buybacks are sometimes viewed critically—some argue that they artificially inflate stock prices and don’t always reflect genuine company growth.

The Importance of Market Timing

Timing the market is notoriously difficult, but it’s one of the biggest determinants of how much a shareholder can make. Buy low, sell high—the oldest advice in the book. But, how low is low enough? How high is too high? No one can predict the market with certainty, and that’s what makes investing in stocks both thrilling and nerve-wracking.

Seasoned investors often recommend a “buy and hold” strategy—invest in companies you believe in for the long term, and ride out short-term fluctuations. But even this strategy doesn’t guarantee profits. Companies can face unexpected challenges, and the stock price can plummet. Just ask anyone who held onto shares of Blockbuster, thinking it was a sure thing.

Conclusion: How Much Do Shareholders Really Make?

The short answer: it depends. It depends on the company, the market, the type of shares you own, and your investment strategy. Some shareholders rake in millions, while others barely break even—or worse, lose money. The key is understanding the risks and rewards, staying informed about the companies you’re investing in, and being patient.

In the end, shareholders who make the most are those who diversify, stay informed, and think long-term. Whether it’s through dividends, capital gains, or stock buybacks, the potential for profit is there—but so is the risk. What you make as a shareholder is often a reflection of how well you manage both.