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Discuss two to three reasons that people invest in stocks or bonds that pay dividends.

On the other side of the coin list two to three reasons that people might not want to invest in companies or bonds that pay high dividends.

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Solution Summary

The expert discusses two to three reasons that people invest in stocks or bonds that pay dividends. The other side of the coin is examined.

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Reasons for popularity of divided payng stocks or why people invest in stocks or bonds that pay dividends:

Once a company commits to a certain dividend, it doesn't want to appear in severe financial distress by later lowering it. It will try, if at all possible, to keep paying that dividend. While dividends don't often go down, they often go up. As a company earns more and more money per share over time, it tends to want to share this good fortune by rewarding its shareholders with ever-higher dividends.

Also, dividends tend to put a floor under a stock's price, which is a third good reason to pay attention to dividends. If a stock sells for $20 and ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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