Chart of the day‘s illustration shows that since 1960, higher earnings have tended to correlate with higher dividends.
Source: Chart of the Day
A few thoughts to keep in mind when considering dividends:
Earnings have soared over the past couple of years,
while dividends have increased at a slower pace. So why are cash-rich
corporate boards holding back despite the dividend tax cut of 2003? (CotD suggests "The explanations range from executives that lack confidence in future earnings to shareholders that are not demanding enough of their corporate boards.")
Dividends, unlike earnings,
are real. They are not opinions. Enron, WorldCom,
Global Crossing and all their ilk didn’t issue much in the way of
dividends, despite their huge, illusory earnings. Dividends are actually bank checks that much "clear."
Over 50% of shares of Dividend paying stocks are in tax deferred accounts — that mutes somewhat the impact of the dividend tax cut.
Lastly, David Jackson answers the question "Why dividend-paying stocks are a mistake."
Quote of the Day
“The soft-minded man always fears change. He feels security in the status quo, and he has an almost morbid fear of the new. The tough mind is sharp and penetrating, breaking through the crust of legends and myths and sifting the true from the false. The tough-minded individual is astute and discerning. He has a strong, austere quality that makes for firmness of purpose and solidness of commitment.”