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Who doesn t love dividends? Retirees and other investors who need to meet ongoing obligations with their savings benefit from steady inflows of cash. And investors still in accumulation mode can reinvest dividends, further nourishing the future value and earning power of their portfolios.
Dividends are typically an indication that a business is established and financially healthy enough to return cash to shareholders. Dividends also force management to be focused on the long term and disciplined with their capital allocation decisions: After a company declares a dividend, it usually tries very hard to avoid cutting the payout, even during lean times. A dividend cut is a signal that a company s earnings are weakening, which will lead many investors to dump the shares.