Dividend

In the 1800s and early 1900s, stocks were known to be investments mostly for dividends(stable income) and not capital appreciation(though there were quite a few periodic speculative excesses) That is why we read about a company’s board of directors declaring a higher dividend and a stock rallying in that era, something that would be hard to comprehend nowadays.

Over time, due to taxes and other reasons, dividend yields(dividend divided by the stock price) has dropped a lot. Growth companies tend to pay out few dividends in order to save cash for expansion, hopefully generating higher returns on investment. Large established companies may pay out dividends when they feel that there are few profitable ventures of expansion and the cash could be better deployed by shareholders themselves.

A high dividend yield does not automatically translate into a good investment. Novastar Financial, a subprime mortgage lender, had a high dividend yield before it collapsed within months. Dividends are not set in stone, and may be cut in times of financial distress.