ShmoopTube

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Finance a la shmoop what is a dividend? well let's start with how [Bird flying with a bag]

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dividends came to be well dividends are the result of a great and awesome quote

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problem unquote.. what happened to corporations is they grew and became

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dominant in their respective industries they retained so much cash profit even [man as a giant corporation crushing city buildings]

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after building factories digging mines and smelting whatever they smelted well

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that they couldn't figure out what to do with the cash so under a lot of [man with an open briefcase full of cash]

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shareholder pressure and that is the common shareholders would threaten to

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fire the Board of Directors, the fat and cash happy corporations just to begin to [common shareholders hitting the board of directors]

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give it back to shareholders their owners who were in turn made happy by

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that event and in many cases on the announcement of an increased dividend [share prices increasing and man shouts into a speaker]

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policy share prices went up because of that whole investor happiness thing

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there's a good structural reason for dividends to exist however they force [men bricklaying]

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companies to be disciplined in their spending that is if companies aren't

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disciplined, they don't have the money to pay the dividend and well when that

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happens to a company basically everyone gets fired in most public companies [Donald Trump firing an employee]

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dividends are viewed as a long-term commitment not as like a one-time thing

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in fact during the Great Depression AT&T famously continued paying its dividend

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without fail and many families relied on that dividend to make ends meet in the [family together eating dinner]

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modern era companies in financial stress have even borrowed money just to make

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sure they can pay their dividends to investors why well they believe that

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when they get through the tough times they'll return to that massive [man running down a road sign posted under tough times]

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profitability and they'll have a track record of continuing to pay dividends [oil machine working as cash piles up]

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and that love is worth taking out a loan to pay a dividend the other big thing to

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consider is that dividends are a very meaningful part of investment returns [dividends arrow pointing to investment returns]

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which lousy financial journalists so often seem to forget many will decry the

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era of the 70s as a lost decade looks like the stock market went nowhere from [man fumbling through a skip]

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1968 to about 1980 right? well no it didn't go up but during that

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period company's continued to pay their dividends and for the decade the [money going into a shareholders window]

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dividend rate of the average S&P 500 company was about six percent so if

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you've done nothing other than collect your six percent a year in dividends [Man collecting a 6% dividends]

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well you would have been just fine you would have almost doubled your

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investment money this way ignoring taxes from about nineteen sixty eight to [Man doubling his investment money from 1968-1980]

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nineteen eighty and that's not bad for a lost decade

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