Why Dividends Are Important

     Here we are in the midst of a stock market correction. It's a scary time for working people who are worried about their retirement funds. For nine years we have gotten used to seeing steady gains in the value of our 401k's and IRA's. The next statement from your broker may shock many savers into panic selling or even a more disastrous move into the bond market via bond mutual funds. I believe in a "buy and hold" strategy for stocks for the most part. The stocks I want to hold for the long term are companies that have strong, established businesses that pay an attractive dividend. A dividend of only 2-3% may not seem too impressive now, but in the long run it can be a significant portion of your total return. If you look back at the total return of the Dow Jones' 30 stocks for 100 years, the total  return is 9.4%. Of that, about half is price appreciation and about half is dividend yield. Therefore, without dividends, your return would be about half as much. When a company increases it's dividend on a regular basis, your investment yield increases as you hold the shares. Remember, your investment yield is based on the amount you have invested and not the current price of the shares. Market pundits call a 10% decline in stocks a correction and a 20% drop is a bear market. We are not in a bear market yet. The average bear market lasts about 10 months but several have lasted over 20 months, one in 1973 and another in 1980. It's not likely that during these down markets that you will see any price appreciation of your portfolio but that portion of total return from your dividend is likely to be intact. Many companies are loathe to cut a dividend that has been paid to shareholders for many consecutive years. When I look at the fixed income universe for attractive and safe places to put my money, I don't see anything that compares to dividend-paying stocks with good long-term records of paying dividends.