What Are Dividends?
Dividends are the way the company makes distribution from the company's profits to it's shareholders.  Companies pay dividends for several reasons.  Companies pay dividends because they have excess cash and would like to give their investor's a return for the money they have invested in the company.  Some companies pay dividends in a consistent manner.  A company with a dividend policy that shows consistency in paying off dividends to it's shareholders is an attractive trait for investors because management shows commitment of giving the investors some return for their investments. 

Dividend Policies should be balanced and well maintained by a good company that cares for their investors.  Management should balance the following factors:
(1) Keeping some portion of it's profit to fund projects that will give higher return to it's investors compared to it's investor's alternate investment options,
(2) Keeping some portion of it's profit to preserve capital to survive.  Most companies usually cut or stop their dividends during a credit crunch, or a severe market down turn like we are currently having right now.  During a market crunch, GOOD companies may lower it's dividend pay out but will try to maintain it's dividend payout consistency to show investors that they are committed in giving investors return for their investments.  Companies should make sure that they need the money before they stop paying because Investors usually get disappointed when a company stops paying dividends and may turn around and invest in other companies instead. 
(3) Keeping some portion of it's profits to fund future growth of the company,
(4) Keeping their investors happy by maximizing dividend payments.

A proper balance at a proper market type should be maintained;  because if the Dividend Policy is not properly set, it could slow down growth of the company, and loose investor's interest in the company.  

Dividend Policy is a balance between Company Growth and Investor's Loyalty
 
Dividend Policy is only one of the things investors should look at when investing in a company.  Since this is one of the three things that an investor can get return for their money.  A portfolio strategy that incorporates dividend policy in it's goals gives an investor additional income while it waits for it's investments to appreciate. 

Well to some up what a dividend can do for your portfolio?  Well just think of a portfolio where each holdings gives you dividends in a consistent manner...Sounds like a portfolio that gives you a monthly income don't you think?


Notes:
Return on Investments In Stocks = ((Capital Gains) + (Dividends Received)) X (No of Shares) - Taxes - Trading Expenses and Fees
Capital Gains = Sell Price of Stock - Purchase Price of Stock 

article written by: alerts@imobhq.com