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What Are Your Dividends For?

Evan Cooper Sep 14, 2016

Sometimes the most basic, and seemingly idiotic, questions can be the most illuminating. So let me ask one such question: Why do you invest in dividend stocks?

The obvious and probably most common response is that owning stocks that pay dividends is a smart, conservative way of investing. And companies that pay regular dividends tend to be larger, more financially stable and less risky than companies that don’t pay dividends.

So far, so good. But let’s go even further.

Answering the Dividend Question

Why do you want the dividend checks? There are probably several reasons. One may be that you want the income to live on. Another is that you may want a return on your investment in hard dollars in the here and now, rather than depend on markets where you may not get a return in the form of capital gains. And then there are investors who like dividends because they represent the comfort of investing in larger companies.

The latter reason opens the door to the point I’m getting at in asking about the purpose of dividends: What’s going on in the minds of dividend investors, and how an understanding of the psychology of dividend investing can help make us more successful investors – however we might define that term.

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