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Stocks 408: The Case for Dividends

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1.
What ultimately drives price appreciation of stocks?
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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.
2.
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).
3.
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.
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.
When are taxes on an investment's capital gains due?
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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.