Beware of Owning Stocks Solely for the Dividend

I've stated on numerous occasions that most investors today underestimate the value of dividend payments. Over the past century, nearly one-half of the annualized market return has been due to dividends. If you examine blue-chip names like Johnson & Johnson (JNJ) and their share-price performance over 10-, 20- and 30-year periods, you'll see the dividend has been an instrumental part of that total return.

This fundamental value of dividends will not be going away. But that value, evident in names like J&J, is a result of a couple important characteristics: consistency in payment and growth in payout. Here, the sum benefit of consistent and growing dividends is immensely greater than each part is in isolation. What good is a growing dividend if it's not consistently paid? If a dividend payout has no chance of growing, meanwhile, it might be a sign of the business' long-term inability to grow cash flows. So isolated dividends may not be as attractive as one may deem. Remember shipping stocks back in 2007?...342 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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