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That's because dividends provide investors with modest protection against stock price declines.
It shows that dividends provide "defensive protection in adverse market environments," said Brian C. Rogers, the T. Rowe Price chairman and fund manager.
The bill will reduce income tax rates, increase the child credit, cut the rates on capital gains and dividends, provide tax breaks for small businesses and send $20 billion to state governments facing budget crises.
It's that trampoline effect; dividends provide a natural support under the stock price.
What these investors forgot and what they're now realizing is that dividends provide a cushion of safety when a stock starts going down.
The answer is that they believe past dividends provide some assurance that the company will be able to keep paying dividends in the future.
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In the 1990's, when stock returns averaged 18.2percentt a year, dividends provided just 2.9 percentage points of that.
Some analysts also speculate that these cash-rich companies may start sharing their wealth with investors through special dividends, providing welcome stimulus for the economy.
Mr. Greenspan said he strongly supported the president's tax policy, particularly the proposal to eliminate taxes on most stock dividends, "provided it is matched by cuts in spending".
Now anyone that understands investing would be skeptical at this point and rightfully ask, What is the catch? The catch in enhanced return structured products, for example, is your potential profits are capped. Also, the investor will not participate in any dividends provided by the underlying index, since these products are structured through the use of derivatives.
Meanwhile a firm commitment on the dividend provides an underpin.
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