Personal Finance: Rediscovering the magic of dividends


By Christopher Hopkins

The first American stock trades occurred under a Buttonwood tree on Wall Street in 1792. For most of that time, the principal attraction of owning shares has been the periodic cash flow paid out to the shareholders. Investors purchased stocks to obtain a stream of income payments, called dividends, and judged the attractiveness of a stock by the issuer’s ability to maintain or even increase the dividend over time.

But with the surge in growth investing culminating with the great tech boom of the 1990s, dividend payouts diminished sharply as investors became more enamored with price appreciation than cash flow. By the end of 1999, the number of public companies that paid a dividend stood at just 20 percent, down from two thirds of all firms in 1978. Thankfully, many investors are now rediscovering the importance of regular cash distributions as a significant component of their total return, and devoting more attention to the maintenance and growth of dividends.

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