Dividends - more than just collecting cash

To many, dividends serve as extra cash to supplement their main income or used as passive retirement income.

Dividends come in cold hard cash and tell us a truth NO other analysts or reseacher or books or guru can.

But in fact there are more uses of dividends.

I shall divide into 3 parts.

During Pre-purchase of stocks:

1) dividend history of past ten years is important to assess company's willingness and ability to pay out dividends. any skipped dividend should be looked into. personally i avoid those company which skipped dividend in past 10 years. dividends during crisis is excellent time to assess this.

2) dividend yield can tell us certain things about the compan, eg what phase it is in, for example, companies which pay 2-3% pa dividends might be conserving cash for expansion purposes.

During Ownership of stocks

1) dividends can be used to buy more of the same stock for compounding effect

2) dividend can be used to buy another company stocks to reduce one's risk to that original stock as well as create an additional cash flow, without selling the original stock.

3) dividends simply used as cash

Post ownership of a stocks (i dont remember any dividend books covered this)

Dividend stocks are meant to have a long holding period. But sometimes, the prices might have run up due to buying interest rather than effect of dividend raises. In this senario the dividend yield goes down and another stock might be a better choice at this point. Switching in search of better yield might a better option. Using this relationship between past history of dividend raises and the stock price, it might be possible to extrapolate a reasonable reentry price later on, if the situation permits.


Anyone who's intending to be a serious investor is strongly encouraged to read up and master this topic of dividends, which IMHO is a very important topic and concept to master.