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With all this cash building up, investors are demanding higher dividends. Personally, I’d like to see higher dividend payments. The reason is very simple: Give investors the decision to buy back stock, don’t do it automatically.

Dividend payments do fluctuate over time, but today's dividend yields are weak by historical standards. The historical dividend yield for the Standard & Poor's 500 is roughly 4 percent; the yield in July was a pale 1.70 percent. Justifying such a low yield isn't easy when companies in the index are sitting on a near-record $621.7 billion in cash.

Investors used to count on dividends for much of their returns. In the 1930s through the '50s, dividends were 60 percent to 80 percent of investors' returns, Eby said. In the 1970s, dividends were 70 percent of stocks' total return, Irving said.

Dividends waned in the 1990s when upstart companies with no profits couldn't afford to pay them, and growing technology companies argued that their money was better spent investing in the business or buying competitors.

There are many benefits of higher dividends. Higher dividends reduce a stock’s volatility and make it easier to value the stock.

Posted by edelfenbein at August 20, 2005 5:00 PM