When is it worth it to buy dividend-bearing stocks?
"Yes, they are, and you've experienced why. Generally speaking, stocks that pay dividends will be better investments than stocks that don't.  Here's why: 1) They're actually making money. They can finagle balance sheets and news releases, but cash is cash, it tells no lies. They can't fake it.   2) There's less good they can do with that money than they say. When a business you own is making money, they can do two things with it: reinvest it into the company, or hand it over to you. All companies must reinvest to some degree, but only a few companies worth owning can find profitable ways of reinvesting all of it. Having to hand you, the owner, some of the earnings helps keep that money from leaking away on such ""necessities"" like corporate jets, expensive printer paper, or ill-conceived corporate buyouts.      3) It helps you not freak out. Markets go up, and markets go down. If you own a good company that's giving you a nice check every three months, it's a lot easier to not panic sell in a downturn. After all, they're handing you a nice check every three months, and checks are cash, and cash tells no lies. You know they're still a good company, and you can ride it out.    4) It helps others not freak out. See #3. That applies to everyone. That, in turn means market downturns weigh less heavily on companies paying solid dividends than on those that do not.  5) It gives you some of the reward of investing in good companies, without having to sell those companies. If you've got a piece of a good, solid, profitable, growing company, why on earth would you want to sell it?  But you'd like to see some rewards from making that wise investment, wouldn't you?     6) Dividends can grow. Solid, growing companies produce more and more earnings. Which means they can hand you more and more cash via the dividend. Which means that if, say, they reliably raise dividends 10%/year, that measly 3% dividend turns into a 6% dividend seven years later (on your initial investment). At year 14, it's 12%. Year 21, 24%. See where this is going? Companies like that do exist, google ""Dividend Aristocrats"".  7) Dividends make growth less important. If you owned a company that paid you a 10% dividend every year, but never grew an inch, would you care? How about 5%, and it grows only slowly?  You invest in companies, not dividends. You invest in companies to make money. Dividends are a useful tool when you invest -- to gauge company value, to smooth your ride, and to give you some of the profit of the business you own. They are, however, only part of the total return from investing -- as you found out." You should never invest in a stock just for the dividend. Dividends are not guaranteed. I have seen some companies that are paying close to 10% dividends but are losing money and have to borrow funds just to maintain the dividends. How long can these companies continue paying dividends at this rate or at all. Would you keep investing in a stock paying 10% dividends per year where the share price is falling 20% per year? I know I wouldn't. Some high dividend paying stocks also tend to grow a lot slower than lower or non dividend paying stocks. You should look at the total return - both dividend yield and capital return combined to make a better decision. You should also never stay in a stock which is falling drastically just because it pays a dividend. I would never stay in a stock that falls 20%, 30%, 50% or more just because I am getting a 5% dividend. Regarding taxation, some countries may have special taxation rules when it comes to dividends just like they may have special taxation rules for longer term capital gains compared to shorter term capital gains. Again no one should use taxation as the main purpose to make an investment decision. You should factor taxation into your decision but it should never be the determining factor of your decisions. No one has ever become poor in making a gain and paying some tax, but many people have lost a great portion of their capital by not selling a stock when it has lost 50% or more of its value.
The dividend goes to he who owns the stock when it goes ex-div. A buyer (the call buyer who exercises) will not exercise unless the stock plus dividend are in the money. Otherwise they'd be buying the stock at a premium.  I like the scenario your friend doesn't. If I can find a high dividend stock and sell the call for a decent price, I may get a great return on a stock that's gone down 5% over a year's time. If it goes up and called away, that's fine too, it means a profit. "Stock has value to the buyer even if it does not currently pay dividends, since it is part ownership of the company (and the company's assets). The owners (of which you are now a part) hire managers to make a ""dividend policy decision.""  If the company can reinvest the profits into a project that would earn more than the ""minimum acceptable rate of return,"" then they should do so. If the company has no internal investment opportunities at or above this desired rate, then the company has an obligation to declare a dividend.  Paying out a dividend returns this portion of profit to the owners, who can then invest their money elsewhere and earn more. For example: The stock market currently has, say, a 5% rate of return. Company A has a $1M profit and can invest it in a project with an expected 10% rate of return, so they should do so. Company B has a $1M profit, but their best internal project only has an expected 2% rate of return.  It is in the owners' best interest to receive their portion of their company's profit as a dividend and re-invest it in other stocks. (Others have pointed out the tax deferrment portion of dividend policy, so I skipped that)" There is a basis for that if you consider the power of compounding. So, the sooner you re-invest the dividends the sooner the time will give you results (through compounding). There is also the case of the commissions, if they are paid with a percentage of the amount invested they automatically gain more from you. Just my 2cents, though the other answers are probably more complete. Don't ever quantify a stock's preference/performance just based on the dividend it is paying out Volatility defined by movements in the the stock's price, affected by factors embedded in the stock e.g. the corporation, the business it is in, the economy, the management etc etc. Apple wasn't paying dividends but people were still buying into it. Same with Amazon, Berkshire, Google. These companies create value by investing their earnings back into their company and this is reflected in their share prices. Their earnings create more value in this way for the stockholders. The holding structures of these companies also help them in their motives. Supposedly $100 invested in either stocks. For keeping things easy, you invested at the same time in both, single annual dividend and prices more or less remain constant. Company A: $5/share at 20% annual dividend yield.  Dividend = $20 Company B: $10/share at 20% annual dividend yield  Dividend = $20 You receive the same dividend in both cases. Volatility willn't affect you unless you are trading, or the stock market tanks, or some very bad news comes out of either company or on the economy. Volatility in the long term averages out, except in specific outlier cases e.g. Lehman bankruptcy and the financial crash which are rare but do happen. In general case the %price movements in both stocks would more or less follow the markets (not exactly though) except when relevant news for either corporations come out. Great answers. Here's my two cents: First, don't forget to look at the overall picture, not just the dividend. Study the company's income statement, balance sheet and cash flow statement for the last few years. Make sure they have good earnings potential, and are not carrying too much debt. I know it's dull, but it's better to miss an opportunity than to buy a turkey and watch the dividends and the share price tank. I went through this with BAC (Bank of America) a couple of years ago. They had a 38-year history of rising dividends when I bought them, and the yield was about 8%. Then the banking crisis happened and the dividend went from $2.56/share to $0.04, and the price fell from $40 to $5. (I stuck with it, continuing to buy at lower and lower prices, and eventually sold them all at $12 and managed to break even, but it was not a pleasant experience) Do your homework. :) Still, one of the most reliable ways to judge a company's dividend-paying ability is to look at its dividend history. Once a company has started paying a dividend there is a strong expectation from shareholders that these payments will continue, and the company's management will try very hard to maintain them. (Though sometimes this doesn't work out, e.g. BAC) You should see an uninterrupted stream of non-decreasing payments over a period of at least 5 years (this timeframe is just a rule of thumb). Well-established, profitable companies also tend to increase their dividends over time, which has the added benefit of pushing up their share price. So you're getting increasing dividends and capital gains. Next, look at the company's payout ratio over time, and the actual cost of the dividend. Can the projected earnings cover the dividend cost without going above the payout ratio? If not, then the dividend is likely to get reduced. In the case of CIM, the dividend history is short and erratic. The earnings are also all over the place, so it's hard to predict what will happen next year. The company is up to its eyeballs debt (current ratio is .2), and its earnings have dropped by 20% in the last quarter. They have lost money in two of the last three years, even though earning have jumped dramatically. This is a very young company, and in my opinion it is too early for them to be paying dividends. A very speculative stock, and you are more likely to make money from capital gains than dividends. AAE is a different story. They are profitable, and have a long dividend history, although the dividend was cut in half recently. This may be a good to buy them hoping the dividend comes back once the economy recovers. However, they are trading at over 40 times earnings, which seems expensive, considering their low profit margins. Before investing your money, invest in your education. :) Get some books on interpretation of financial staments, and learn how to read the numbers. It's sort of like looking at the codes in The Matrix, and seeing the blonde in the red dress (or whatever it was). Good luck! "This question is predicated on the assumption that investors prefer dividends, as this depends on who you're speaking to.  Some investors prefer growth stocks (some which don't pay dividends), so in this case, we're covering the percent of investors who like dividend paying stocks. It depends on who you ask and it also depends on how self-aware they are because some people may give reasons that make little financial sense.  The two major benefits that I hear are fundamentally psychological: Dividends are like mini-paychecks.  Since people get a dopamine jolt from receiving a paycheck, I would predict the same holds true for receiving dividends.  More than likely, the brain feels a reward when getting dividends; even if the dividend stock performs lower than a growth stock for a decade, the experience of receiving dividends may feel more rewarding (plus, depending on the institution, they may get a report or see the tax information for the year, and that also feels good). Some value investors don't reinvest dividends, as they believe the price of the stock matters (stocks are either cheap or expensive and automatic reinvestment to these investors implies that the price of a stock doesn't matter), so dividends allow them to rebuild their cash after a buy.  They can either buy more shares, if the stock is cheap, or keep the cash if the stock is expensive.  Think about Warren Buffett here: he purchased $3 billion worth of shares of Wells Fargo at approximately $8-12 a share in 2009 (from my memory, as people were shocked that be bought into a bank when no one liked banks).  Consider how much money he makes from dividends off that purchase alone and if he were to currently believe Wells Fargo was overpriced, he could keep the cash and buy something else he believes is cheaper.  In these cases, dividends automatically build cash cushions post buying and many value investors believe that one should always have cash on hand. This second point is a little tricky because it can involve risk assessment: some investors believe that high dividend paying stocks, like MO, won't experience the huge declines of indexes like the SPY.  MO routed the SPY in 2009 (29% vs. 19%) and these investors believe that's because it's yield was too desired (it feels safer to them - the index side would argue ""but what happens in the long run?"").  The problem I have with this argument (which is frequent) is that it doesn't hold true for every high yield stock, though some high yield stocks do show strong resistance levels during bear markets." "Think about the implications if the world worked as your question implies that it ""should"":  A $15 share of stock would return you (at least) $15 after 3 months, plus another $15 after 6 months, plus another after 9 and 12 months.  This would have returned to you $60 over the year that you owned it (plus you still own the share).  Only then would the stock be worth buying?  Anything less than $60 would be too little to be worth bothering about for $15? Such a thing would indeed be worth buying, but you won't find golden-egg laying stocks like that on the stock market.  Why?  Because other people would outbid your measly $15 in order to get this $60-a-year producing stock (in fact, they would bid many hundreds of dollars).  Since other people bid more, you can't find such a deal available. (Of course, there are the points others have brought up: the earnings per share are yearly, not quarterly, unless otherwise noted.  The earnings may not be sent to you at all, or only a small part, but you would gain much of their value because the company should be worth about that much more by keeping the earnings.)" One reason to prefer a dividend-paying stock is when you don't plan to reinvest the dividends.  For example, if you're retired and living off the income from your investments, a dividend-paying stock can give you a relatively stable income. The S&P 500 is an index, you can't buy shares of an index, but you can find index funds to invest in. Each company in that fund that pays dividends will do so on their own schedule, and the fund you've invested in will either distribute dividends or accumulate them (re-invest), this is pre-defined, not something they'd decide quarter to quarter. If the fund distributes dividends, they will likely combine the dividends they receive and distribute to you quarterly.  The value you've referenced represents the total annual dividend across the index, dividend yield for S&P500 is currently ~1.9%, so if you invested $10,000 a year ago in a fund that matched the S&P 500, you'd have ~$190 in dividend yield. It is a bit more complicated than whether it pays more or less dividends. You should make your decision based on how well the company is performing both fundamentally and technically. Concentrating mainly on the fundamental performance for this question, most good and healthy companies make enough profits to both pay out dividends and invest back into the company to keep growing the company and profits. In fact a good indication of a well performing company is when their dividend per share and earnings per share are both growing each year and the dividends per share are less than the earnings per share (that way you know dividends are being paid out from new profits and not existing cash holdings). This information can give you an indication of both a stable and growing company. I would rather invest in a company that pays little or no dividends but is increasing profits and growing year after year than a company that pays higher dividends but its profits are decreasing year after year. How long will the company continue to pay dividends for, if it starts making less and less profits to pay them with? You should never invest in a company solely because they pay dividends, if you do you will end up losing money. It is no use making $1 in dividends if you lose $2+ because the share price drops. The annual returns from dividends are often between 1% and 6%, and, in some cases, up to 10%. However, annual returns from capital gains can be 20%, 50%, 100% or more for a stable and growing company. Large companies whose shares I was looking at had dividends of the order of ~1-2%, such as 0.65%, or 1.2% or some such. My savings account provides me with an annual return of 4% as interest. Firstly inflation, interest increases the numeric value of your bank balance but inflation reduces what that means in real terms. From a quick google it looks like inflation in india is currently arround 6% so your savings account is losing 2% in real terms. On the other hand you would expect a stable company to maintain a similar value in real terms. So the dividend can be seen as real terms income. Secondly investors generally hope that their companies will not merely be stable but grow in value over time. Whether that hope is rational is another question.  Why not just invest in options instead for higher potential profits? It's possible to make a lot of money this way. It's also possible to lose a lot of money this way. If your knowlage of money is so poor you don't even understand why people buy stocks there is no way you should be going near the more complicated financial products. Wow I love some of these answers. Remember why you are investing in the first place.  For me I like Dividend stocks and Dividend Capturing. Here is why. With over 3500 dividend stock companies paying out dividends this year, that means I can get a dividend check almost every day. What about if the stock goes down you ask? Well out of these 3500 companies there is a small group of these stocks that have consistently increased their dividend payout to their investors for over 25 years and a smaller group that have been increasing every year their pay outs for over 50 years. Yes Kennedy was in office back then and to this day they consistently pay higher and higher dividend payments to their investors, every year... for 50 years.  As for the Dividend Capturing strategy, that allows me to collect up 10-20 checks per month with that little effort. As for the stock going down... Here is a little tidbit that most buyers overlook. Stock price is more or less the public's perception of the value of a certain company. Earnings, balance sheet, cash flow, market cap and a few other things in the quarterly report will give you a better answer to the value of a company. If stock price goes down while earning and market go keep going up... what does that tell you? At 19 years old you can and should be investing to see your money grow over the years. Reinvesting the dividends does get to be pretty significant because they compound over many years. Historically this dividend compounding accounts for about half of the total gains from stocks. At 70 years old I am not investing to see my money grow, although that's nice. I am investing to eat. I live on the dividends, and they tend to come in fairly reliably even as the market bounces up and down. For stocks selected with this in mind I get about 4% per year from the dividends. I would say that the answer is yes.  Investors may move on purchasing a stock as a result of news that a stock is set to pay out their dividend.   It would be interesting to analyze the trend based on a company's dividend payouts over 10 or so years to see what/how this impacts the market value of a given company. Pre-Enron many companies forced the 401K match to be in company shares. That is no longer allowed becasue of changes in the law. Therefore most employees have only a small minority of their retirement savings in company shares. I know the ESOP and 401K aren't the same, but in my company every year the number of participants in the company stock purchase program decreases. The small number of participants and the small portion of their new retirement funds being in company shares would mean this spike in volume would be very small.  The ESOP plan for my employer takes money each paycheck, then purchases the shares once a quarter. This delay would allow them to manage the purchases better. I know with a previous employer most ESOP participants only held the shares for the minimum time, thus providing a steady steam of shares being sold.