Investors don’t just invest on any stock that presents itself on the stock market. They first do stock analysis to figure out the direction of a given stock in future. In most cases, investors usually invest in stocks that consistently pay dividends. Although dividends are not always guaranteed on typical stock, most companies take pride on rewarding their shareholders generously with consistent and oftentimes increasing dividends. A company that does this is perceived to be financially stable. In the financial world, a company that is perceived to be financially stable makes for a great investment, especially among investors who buy and hold their investments.
Such “buy-and-hold” investors always benefit from dividend stocks or dividend payments every year. When a company consistently displays dividend history, the company becomes attractive to investors. This will see many investors buying in to take full advantage of the benefit of owning a stock. If the number of investors increases, this will reinforce a notion that the company’s stock is rising and therefore strong. In case the company declares a higher dividend than normal, the general perception of the company will soar. But if a company traditionally known for paying dividends issues lower dividends than normal or does not issue any dividend, the general public will interpret this as a sign of a company facing hard financial times.
The reality could be the company is using its profits for other development purposes such as expanding their businesses. Therefore, the perception of a company in the financial market is always more influential than the reality on the ground. To eliminate this perception, many companies in the financial markets work hard every year to ensure that they pay dividends consistently. This is one reason why dividend investing is very attractive because investors are at least guaranteed a payment. But if the payment is not made, it will spook investors and see the action as a crisis.