Most of us are familiar with Einstein's famous quip that compound interest is one of the most powerful forces in the universe. In these days of low interest rates and extreme stock market volatility, this truism may be playing a role in the current infatuation with bonds and other long-term interest-bearing instruments. But Einstein had it wrong. What is true about interest can be even more true for stock dividends.
The threat of inflation highlights the advantages of dividends over fixed-rate interest. During inflationary times companies experience inflation-related earnings growth as currencies fall. This should cause their stocks to rise and allows them to increase nominal dividends. Fixed-rate bonds, by contrast, decline in value. In fact many blue-chip equities yield more than long-term Treasurys.
Source: Forbes
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