Dividends are a good thing. So why have they gotten such bad press lately?
When you invest in a stock, cash that the company pays you is your dividend. All kinds of information about the company can be changed, but you know for sure what you’ve gotten back. And paying dividends requires management discipline.
So why are dividend-paying stocks doing so poorly? Over the past two years the market has returned only 2% per year, but a market-basket based on dividends has been down about 2% per year. Part of the reason has to do with financial stocks. Traditionally, banks have been more generous dividend-payers. But as housing prices have fallen, bank stocks have tanked.
In spite of their recent setback, dividends remain a solid indicator of a company’s financial health and its commitment to its shareholders. A stable and growing dividend is one of the best ways for management to show that they really care about the company’s owners.
Douglas R. Tengdin, CFA
Chief Investment Officer
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