In the old days, investors went into the market expecting a little extra income each quarter through dividends, which are cash payments from companies to their shareholders.

The aggressive-growth companies, dot.coms, and high-flying IPOs of the late 1990s didn't pay dividends. In the so-called "new" economy, we were all supposed to invest a little today and quadruple our money tomorrow; investors didn't expect to stick around to see a full quarter!

Considering what happened, doesn't a fairly reliable sum of money coming in every three months sound like the monetary equivalent of comfort food?

That's a big reason dividends are now back in style.

Dolan Smart Money Move: We believe in a steady diet of dividends. A company can lie like crazy on the balance sheet if it doesn't have to pony up a payout to investors every quarter, but when the company has a track record for paying dividends, the size and reliability are an indication of whether its finances are stable. You can't pay a dividend when the company is broke!

Here's what you should know about dividends:

• You won't get them from hot, young, untested companies. And that's a good thing! The companies that pay dividends tend to be Fortune 500 companies that are considered growth-and-income investments–that is, investors expect them to produce slow, steady growth rather than a quick return.


• That said, the fact that a company has a history of paying dividends is not a foolproof guarantee that the stock will make money, or even that you'll keep getting dividends forever. The board of directors of a company decides if it will declare a dividend. It is usually paid out on a quarterly basis, but the board can elect to withhold or reduce the dividends if the company is facing a cash squeeze.


• Dividend-paying stocks are a defensive strategy for tough times. They're the same stocks that will look unappealing when the market is booming because they are mature companies that aren't growing rapidly when the upstarts are bragging about revenue growth of more than 100% a year. If you find yourself wanting to believe such claims the next time around, take a deep breath and remember the technology bubble of the nineties. Always keep some of your portfolio in dividend-paying stocks as a cushion against the risks you take with the portion that's in aggressive stocks.

Dolan Smart Money Move: We suggest that instead of spending your dividend, you reinvest it through a dividend reinvestment plan (DRIP). That way you keep increasing your investment without paying commissions.

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