Dividends: Preventive Medicine Against Emotional Investing

This paper defends stock dividends as significant and important investment portfolio components. Dividends and related financial dynamics are covered in several terms: "bird in the hand" psychology, dividend signaling and average returns. Given that even professional investors are subject to emotional investing decisions as well as confusing skill with luck, dividends provide a steadying effect on portfolio returns. Dividend payments eliminate some of the buy/sell decisions that can haunt investors and drive them to emotional and self-sabotaging investment moves, especially in a volatile market. Generally speaking, the more an investor is subject to emotional extremes and money worries, the more he should rely on dividends. As an investor gains experience, perspective and in-depth understanding of the market, he can smoothly transition to higher-risk small caps without excessive worry -- and without excessively bad trading decisions -- when it comes to overall returns. Bird in the HandOne prominent aspect of... Read more