the best way to think about dividends is this.Imagine you have a...

the best way to think about dividends is this.

Imagine you have a money box that’s worth about $20, and each week some one puts 10 cents in the money box for you.

After 6 months you have a $20 money box, with $2.60 inside. So you have $22.60 worth of value.

But then on ex div date, you open up the money box and remove the $2.60 and put it in your pocket.

Now the money box will drop back to only being worth $20 once you remove the $2.60, but that $2.60 will grow back as each week another 10 cents gets deposited.

This is what happens with shares like FMG, except the 10cents deposited each week (the earnings) changes depending on the Iron ore price, and the price of the money box itself (the share) changes depending on what people think the future of the iron price will be and also whether the speculators are greedy or fearful that day.

In the case of FMG, I think the share / money box is easily worth $28 even when it’s empty, based in the Likely earnings on even much lower Iron Ore prices.