20 Dividend Features

Dividends typically come in the form of cash from earnings that a company will pay out to it's respective shareholders. However, to oversimplify this topic, any investment whether it's a companies publicly traded stock, a mutual fund that owns numerous stocks, a bond, real estate investment trust, master limited partnership or any of the roughly 30 various asset classes that investors can choose from, if it's pays dividends, interest, income, yield, return of capital or any other cash flow then we'll consider that a "DIVIDEND". 20 Common Dividend Features:

DEPENDABILITY--Dividend paying companies are typically in a position and well established seasoned companies that give cash flow to their shareholders either semi-annually, most often quarterly and in some cases monthly.

CERTAINTY--Whether the markets are up or down, most dividends continue to be paid. While not all dividends are certain, they do provide some certainty.

SAFETY--Companies that have excess cash pay dividends or buy back stock. Companies with excess cash are more financially sound

INCOME--Dividend income can dampen portfolio volatility and offset fees paid to your advisor or brokerage firm.

GROWTH--Dividends don't have to be from only large value companies, they can be from mid cap growth or large cap growth companies. Don't confuse dividends with lack of growth.

QUALITY--Dividends provide investors a more disciplined and systematic approach to achieve their financial goals over the more complex, actively trading, market timing approach.

RETIREMENT INCOME--Dividends can provide retirement income to supplement social security, pensions and rental income to maintain your quality of life in retirement.

COMPOUNDING--Dividends can be reinvested to buy more shares of the same investment and as those positions grow in size the dividends should grow in size. Dividends don't have to be reinvested in the same position, but they can be paid directly to shareholders or perhaps carved out to a seperate buck inside your brokerage account to purchase other investment vehicles.

INFLATION--Dividends in todays low interest rate environment can help your money keep up or potentially outpace inflation. Many companies have tremendous historical track records of dividend increases which can outpace inflation.

VOLATILITY--Market volatility is often irrational, but a steady stream of dividends year in and year out can help minimize portfolio volatility and provide stability and minimize adverse market impacts.

RISK MANAGEMENT--Investments that don't pay dividends are considered speculative or growth oriented. Earnings growth isn't as consistent as dividend growth and dividends are paid from actual cash, which can't typically be manipulated through fraud and gimmicky accounting. In addition, companies that pay dividends typically trade at reasonable multiples relative to high PE growth companies like many dot.com stocks that had little to no earnings.

STEWARDSHIP--Companies that return cash to their shareholders and even grow that cash over time are a good indication that management is efficient and focused on running a quality company. Good stewardship of capital through dividends is important to good companies, with able management and sustainable business models.

CONTROL--Investors can't control the markets, but they can control their fees, the prices they pay, their asset allocation strategy, their risk tolerance and dividend cash flow their portfolio is expected to generate. Dividends can also help control your emotions and guide your investment discipline.

SIMPLICITY--Complexity is often an investors worst enemy. Dividends are a time tested, disciplined and low maintenace way to manage the complexity of the world financial markets.

WORKING CAPITAL--Money invested in companies that don't pay dividends like biotech stocks or commodities like gold can only make money if they appreciate. Why not have your money working for you and paying you over time.

RETURN--Depending on the study and when you measure it, dividends have accounted for over 40% of an investors return in stocks and account for roughly 70% on fixed income returns. Dividends provide a fairly measurable amount of return.

PRINCIPAL PROTECTION--Dividends paid to investors to supplement their social security or as their only source of income in retirement can prevent you from having to dip into your principal.

BALANCE--Capital gains and dividends are now taxed at the same rate, providing investors a level and balanced playing field with respect to the taxation impact on their portfolio.

SOCIALLY RESPONSIBLE-Socially responsible means sustainable, socially concious and ethical. I'm not referring to avoiding guns, alcohol and tobacco companies but dividends meet all three SRI criteria.

CASH IS KING--I don't know who coined the phrase "cash is king", but there are many pearls of widsom in those words. Or as Randy Moss once said "straight cash homey".

Enron, Lehman Brother and General Motors all paid dividends to their shareholders. Dividends do not eliminate all business and management risks. Investing does involve risk including loss of principal and as always past performance is not indicative of future returns.