Dividends4Life: Dividends Matter During Inflationary Periods

Dividends Matter During Inflationary Periods

Posted by D4L | Saturday, November 27, 2010 | | 0 comments »

In some ways, the dividend actions by companies provide investors with insight into management and the board's expectations of a company's future earnings prospects. This valuation methodology is what led to using the "dividend discount model" as a way to value companies. Importantly, the DDM can further be used to relate the value of a stock to a company's fundamentals.

Generally, companies do not want to reduce or slow their dividend growth rates as investors in these types of companies have come to expect a certain level of dividend growth or income growth. If the growth rate slows or other financial ratios begin to trend in the wrong direction due to a company's desire to maintain a certain dividend growth rate, this provides investors with important insight into the future return potential for a stock. Additionally, as noted in a recent research report by Fidelity's Market Analysis, Research & Education group, dividends are a critical component of a stock's overall return.

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