A. Dividends are a key way for companies to give back to shareholders, and in the right situation, dividend stocks can be a powerful component in an investor’s portfolio.
The advantages of dividend investing are as follows:
- Companies can increase dividends over time. (P&G, for example, has increased their dividend every year for 60 years)
- Companies can’t fake dividends – a company either declares a dividend, or it doesn’t
- Dividends protect against inflation. (Dividends have increased 4.2% since 1912, and inflation has increased 3.3%)
- Dividends create intrinsic value, as they generate cash flow for investors
- Dividends can help combat volatility – that’s because dividend yield increases as the market price of a stock falls, making the stock more attractive