[UPDATED: I originally posted the entire article from investopedia here, but after brushing up on my copyright rules and regs (thanks to a couple colleagues) I’ve removed the article and just linked to it. Oops. Better safe than sorry.]
Justin here. I ran across a great article on investopedia.com (you can find the original here) that talks about where all our stock value “went”.
The take-home is this: when so much of a company’s stock price is determined by perception, there is real value and security in investing in companies that will pay you a dividend. People can argue all day long whether a stock is worth $5 or $50, but it is impossible to argue about the real value of the dividends that just landed in your account.
Once you start focusing on dividends, the main question becomes: “is this company (stock) able and inclined to pay a stable, meaningful, and growing dividend?”
We think that’s a whole lot more productive and easier to determine than the non-dividend approach where the sole question is: “is this company going to be worth substantially more on the day I need to sell it?”