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Stocks 408: The Case for Dividends

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1.
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. This is one of their many benefits: autopilot investing.
2.
Why is an economic moat important for a dividend-paying firm?
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Both of the above. Moats are critical both for the sustainability of a dividend and for its growth potential.
3.
What are the two components of total return?
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Dividends and capital gains. Total return includes both price appreciation (capital gains) and income (dividends).
4.
With a dividend reinvestment plan (DRIP) for stocks, what happens to reinvested dividends?
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They purchase additional shares of stock for you. DRIPs will actually buy additional shares for you; this is a way of investing on autopilot.
5.
Ultimately, dividends are behind capital gains.
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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.