Why Invest in Dividends Stocks

There is quite a large amount of twisted thoughts when and acceptance of half truths in general when it comes to a certain amount of aspects of average stock investments. Nonetheless, whenever the meaning and the importance of dividends is taken into account, the bewilderment of the average investor turns into something very problematic.

This bewilderment and the acceptance of somewhat or half truths can be seen even in the choice of words that are usually utilized to explain several kinds of dividend action. A corporation has been paying no dividend or a smaller one therefore the president of the corporation requests the board of directors to begin paying a good amount of dividend and then this request is carried out. When this action takes place the president or the board of directors will normally refer to it by mentioning that it was the moment to do something for the stockholders. The deduction refers that by not paying or increasing the dividend the company was not doing anything for its stockholders. This might just so be the case sometimes; nonetheless it definitely is not certain due to the fact that some dividends had not been paid. There is a possibility that by spending earnings not as dividends but in order to put up a new plant, launch a new product line, or place some new equipment in the plant that is more cost efficient etc, it is possible the management of the company may have been doing a lot more to help the stockholder than it would have done by simply passing these earnings out as dividends. Without mattering what may have been done with the earnings that were not passed on as dividends, raises in the dividend rate are regularly consigned as favourable dividend action. Perhaps with even more reason, reduction or elimination of dividends is almost always referred to as unfavourable.

One of the biggest reasons for this confusion regarding dividends in the mind of the public in general is due to the distinction between the quantities of benefit, if there is any that increases to the stockholder every time earnings are not passed over to the stockholder and are kept in the business. There are times in which a stockholder does not benefit at all from retained earnings while there are other moments in which the stockholder only a negative way. If the earnings were not held back or retained, the holdings of the stockholder would go down in value, on the other hand the retained earnings do not in any way increase the value of the stockholders holdings and because of this does not seem beneficial to him. Ultimately in the different cases where the stockholder benefits a lot from retained earnings mounts up in a lot of different ways to diverse types of stockholders that are all in the same company, and this obviously causes a good amount of confusion for the investors. In other words, this means that every time earnings are not passed out as dividends, the action needs to be looked into on its own worth in order to see precisely what is indeed occurring. It may also be a good idea to check a little bit under the surface in this area and talk about some of the differences very well.