What are dividends?

Companies are pushing them up in an attempt to lure in investors. GE, that has been struggling to downsize in latest years, announced Monday plans to cut its dividends by half, from 24 cents a share on a quarterly basis to 12 cents a share. So why do dividends matter? A 12 cent cut might not seem like a lot from a per share basis. But think about it like that: over the last decade, theyve represented about 50% of the returns earned by stock investors overall. Dividends are a part of earnings that some companies pay out to shareholders for simply holding onto the stock.

Not all companies have these regular payments. Jeff Bezos Amazon for instance decided against doing so, likely because he believed earnings might be put to a better use. And for GE, while it 24 cents per share might seem paltry, consider the payments of investors who actually hold onto the stock. Before GEs most latest cut, dividends represented more than $8 billion in income for investors yearly. GE also was the seventh best paying dividend stock on a dollar basis on the S&P 500 before Monday.

Many investors own GE for the dividend, so its unsatisfactory, but its also not very surprising that they’d to cut, said Allianz Global Investors Burns McKinney in an e-mail Monday, as the company’s share price slid 7.2%.So why do some companies want to give out dividends? Although the Federal Reserve cut rates of interest following the Financial Crisis in a bid to jump start the economics, U. Giants decided against investing development and research and instead, rewarded their shareholders with dividends and stock buybacks. The low rates of interest which were intended to drive businesses to invest in their growth and take some entrepreneurial risk instead had the opposite effect, according to a LPL Financial report.

To some extent, that appears to have continued in 2017, with earnings have grown this year amid stronger economic context both domestically and overseas, the majority of U. Companies on the S&P 500 have though have raised their dividend payouts. According to Howard Silverblatt, a veteran market analyst at S&P Global, 310 companies have hiked their rates this year, adding $36.3 billion to annual dividend payouts. The hikes are expected to lead to a 6th consecutive year of record breaking dividend payouts, in accordance with the analyst. I believe the overall dividend picture is very positive, as companies have record earnings, with cash also at a record, Silverblatt wrote in a Monday note.