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Why is an economic moat important for a dividend-paying firm?

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It protects the company's earnings (and dividend-paying power) from competitive pressures.

It implies that the company has investment opportunities that will allow it to grow the dividend.

Both of the above

Both of the above. Moats are critical both for the sustainability of a dividend and for its growth potential.

When are taxes on an investment's dividends normally due?

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In the year that the dividends occur

In the year that the investment is sold

At retirement age

None of the above

In the year that the dividends occur. Dividends are immediately taxable. If they are earned in a tax-deferred account, then they will be due years in the future, but this is not the normal situation.

With a dividend reinvestment plan (DRIP) for stocks, dividends are reinvested automatically for you so that you do not need to invest them yourself.

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True

False

True. This is one of their many benefits: autopilot investing.

Ultimately, dividends are behind capital gains.

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True

False

True. The underlying reason for investors bidding up the prices of stocks is that they are valuing the dividends that the company will pay, even if those dividends do not materialize for a while.

What are the two components of total return?

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Dividends and capital gains

Dividends and acquisitions

Capital gains and tax refunds

Dividends and capital gains. Total return includes both price appreciation (capital gains) and income (dividends).

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