​How Important Are Dividends To Investors

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November 4, 2011

How Important Are Dividends To Investors – Knowing how important it is to look for high and fast capital gains, investors look at dividends as a low priority. However, for long term, research shows that such a payment can make a big difference in the overall return.

Many of the biggest quoted companies have been paying an annual commission for years. Part of the appeal of their shares as an investment, and part of the valuation in the price is this earnings policy and reliability.

As a general rule, the largest companies also make the largest and most secure annual payment. Of course, this can never be true of every situation, but the bigger and more important businesses have the security and often the profits to cover a payment comfortably.

It may not be the most rewarding of actions for a company which has a track record of creating a high return on investment to pay funds out to investors. Unfortunately, there are too few businesses of this nature. Company management also recognize that by paying an annual dividend their company can potentially be called an income stock.

Income stocks are not necessarily viewed as important in the market, but there is a wide array of mutual type funds that specifically invest in such companies. This of course opens the way to much larger institutional investment in a firm which in turn will help to underpin the price in the market. As big funds buy big holdings, the number of shares floating in the market will usually be reduced. By lowering liquidity, the share price will generally be assisted.

There are, of course, many shareholders that will purchase company stock and are specifically attracted by the payment of a dividend. These investors will use the payment to subsidize their income and as such, value stability.