How much the stock prices goes up. This provides headline sizzle and, as such, is bantered about frequently with reports of: "The stock market gained/lost today," or "XYZ Company reported earnings and saw their stock go up/down today." It's the same story day after day with the media alternating the words gained/lost and up/down where appropriate. But is that really the whole story? For many it is not. Dividends:
Income paying stocks provide cash (like rent) to an investor quarterly. Historically, dividends played a large role in an investor's total return. In fact, up until the early 1980s, dividends were the main factor when considering whether or not to buy a stock. Over the last three decades, dividends gave way to capital appreciation. Some experts think that the pendulum may swing back to dividends. How much of a role have dividends played historically? From 1926 to 2010, the average rate of return of the Standard & Poor's 500 stock index was 9.6%. Surprisingly, almost half of that return was from dividends, at a respectable 4.1% per year. The S&P 500 is currently paying a dividend yield of about 2%. Yet it's not hard to find investments that focus on high-quality dividend paying stocks to boost your yield to 3% or more. If you don't want to pick those stocks on your own, you can find quite a few mutual funds and exchange-traded funds that concentrate on dividend paying stocks. In a climate where you are lucky enough to earn 0.25% on your bank savings account, earning a dividend yield of 3% is a vast improvement -- assuming you have the time, are willing to endure stock-price volatility and understand that stocks don't carry Federal Deposit Insurance Corp. guarantees, as savings accounts do. Companies are reporting record profits and cash on their balance sheets. Paying out a higher dividend to shareholders is a viable option for a company to make use of that cash. Companies are starting to do exactly this -- paying a higher rent to their shareholders. But investing in dividend stocks is not without risk. A best-case scenario is that you own a stock that appreciates greatly while being paid a quarterly dividend all along. The worst-case scenario is that your principal investment declines significantly and the company announces it can no longer pay a dividend. That is equivalent to a landlord losing tenants while seeing property value depreciate. What factors should you consider when evaluating dividend-paying stocks?