Risk Management, Trading & Portfolio Strategies

Dividends: How important are they?

A dividend-producing investment is a great way for investors to supplement their riskier ventures.

A dividend-producing investment is a great way for investors to supplement their riskier ventures.

Depending on who you ask, a dividend is either a cheap gimmick to keep investors around or a justifiable measure that offers shareholders a reason to continue keeping faith in a given company. Ultimately, it comes down to the individual investment strategy and the personal importance placed on receiving an annual payout from certain holdings. Given the current state of the global economy, and the risks of both a protracted slowdown and long-term low interest rates, it might be wise for investors to consider seeking out companies to invest in that deliver a dividend.

Mark Mobius, who runs a finance blog for Franklin Templeton Investments, remarked in a recent post that dividends "can be an indicator of good corporate governance." In simpler terms, a dividend is an illustration that a company's leadership understands the value of rewarding its stakeholders on a regular basis. Mobius goes on to explain that a dividend is a reflection of the fact that a business has enough cash flow to give back to its investors while still saving enough for future expansion and growth opportunities. 

To put this argument in a broader context, a dividend is a way for an investor to seek out a higher return on their efforts without taking on riskier ventures. Most dividend-offering companies are established in their industries and are only allowed to do so because of a demonstrated level of success that will extend into the foreseeable future. Many finance and industrial businesses offer dividends for this very reason.

On the other hand, some individuals may want to diversify – to use the hackneyed term – to build a portfolio that is a mix of dividend and non-dividend investments. If so, these investors will surely want to investigate portfolio risk software that makes discerning market risk easier. SmartStops are an innovative set of tools that deliver real-time results, such as our Risk Signals showing where particular stocks are headed based on qualified risk profiles. Contact us today to learn more! 

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