Sharing profits through dividends

Another benefit of dividends over bank interest is that dividends typically grow over time. For example, a $10,000 cash investment paying 5 per cent a year in interest will always pay $500 and the principal stays the same. But a $10,000 investment in a company that is growing its profits should deliver increased dividend payouts plus capital growth over time.

Several big dividend payers collapsed during the global financial crisis or wound back their payments dramatically. "More attention should be given to the underlying company," Prisk says. "The most attractive companies for any investor are those that demonstrate sound management, conservative debt levels, quality of business and recurring earnings. Stocks that offer both a solid regular income and capital gain are generally the keepers. In general, I would favour taking the dividend payout as cash."

Source: Adelaide Now

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