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Stocks 408: The Case for Dividends

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1.
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.
2.
Which of the following is not a benefit of a DRIP?
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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.
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, 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.
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.