- If you have invested in a business that does not pay any dividends, you have no compensation for what has happened, just less money than you had when you invested.
- However, if the business pays dividends and continues to honour that commitment (in the same way that companies like Coca Cola have historically done) then it mitigates some of your risk.
Or to put it another way, you still get some income from the investment which could be seen to offset your loss in the share price, should that have happened.
As a general principle, I tend to invest only in businesses that have a sustained track record of paying dividends.
"When buying a dividend stock, the quality of the company is the number one consideration. Given enough time, a quality company will always rise above lesser competition. When your holding period is forever, it is inevitable that a superior stock will eventually out-perform second-tier players." - Warren Buffett
In an ideal situation, you will buy a share in a business which is undervalued, and over time the share will increase in value to the point at which you are very pleased with the capital gain you have seen in the share price. Then guess what, you also receive a cash bonus in the form of a dividend payment! Sounds like a great concept to me. :-)