Dividend Growth Investing

Investing in companies that pay dividends does not necessarily improve returns, as corporations can use their capital for other purposes such as investing in future projects or mergers and acquisitions. The net result for shareholders is the same whether the company returns capital through dividends or share buybacks. The mental accounting bias leads many investors to favor dividends, however, the impact of a dividend is net neutral in terms of wealth before taxes. The fascination with dividends can lead to unfavorable characteristics in a portfolio.