Why you can't afford to ignore dividends

In the 1990s, conventional wisdom dictated that companies should reinvest their earnings. But investors should appreciate dividends, for one key reason.

Back in the 1990s, investors couldn't have been less interested in dividends. Instead of paying out some of their profits to shareholders, the conventional wisdom said, companies should devote all their earnings to reinvestment in jazzy new technologies. This strategy fuelled even faster profit growth and share price rises. But since the collapse of the technology bubble and the emphasis on fast-growing stocks, investors have again come to appreciate regular cash payments from their equity investments and not just because it's harder for a firm to fake earnings if it has to pay a portion of them out. Studies also suggest that the more cash a company keeps, the greater the chance that it will squander it.

Dividend-paying stocks: long-term returns

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