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1.
Which of the following is not a benefit of a DRIP?
It pays double the regular dividend. DRIPs encourage long-term investing, and because the dividends are reinvesting regularly, investors may benefit from dollar-cost averaging. However, DRIPs respect the existing dividend rates.
2.
Why is an economic moat important for a dividend-paying firm?
Both of the above. Moats are critical both for the sustainability of a dividend and for its growth potential.
3.
When are taxes on an investment's capital gains due?
In the year that the investment is sold. Although gains may occur, no tax is due until the investment is sold. This may or may not occur at one's retirement age.
4.
What are the two components of total return?
Dividends and capital gains. Total return includes both price appreciation (capital gains) and income (dividends).
5.
What ultimately drives price appreciation of stocks?
Anticipated dividends. Ultimately, what causes stock prices to go up is the anticipation of dividend payouts, even if investors understand that there will not be dividends for many years.
