Stocks that pay cash dividends are in essence sharing their profits with investors who have equity ownership in a particular company. Dividends are a reward, as in the statement “our efforts finally paid dividends.” Historically, dividends have been an excellent way to create wealth. Going back to 1960, 79.5% of the total return of the S&P 500 index is attributed to reinvested dividends and the power of compounding. Albert Einstein stated, “The most powerful force in the universe is compound interest.”
Dividend paying companies tend to be solid and well established. In contrast, growth oriented companies generally retain their excess earnings using profits to help sustain growth. Companies with a reliable history of paying and increasing dividends must maintain strong balance sheets, and demonstrate by accumulating cash their ongoing commitment to shareholders. As investors enter retirement and have a greater need for reliable income, dividend-paying stocks may help meet that need. Investigating stocks with a reliable history of raising their dividends may be especially important in a time where the outlook for interest rates remains uncertain. Stay focused and invest accordingly.
Source: Coastal Breeze News
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