An Appreciation of the Dear Old Dividend
There is no single Big Fix to the crisis of corporate governance that has brought down markets, rattled and embittered investors and employees alike, and shaken American politics.</br></br>One remedy, however, would do much to change the circumstances that helped create the crisis and would be a very practical step toward restoring confidence in the equity markets: issuing and increasing dividends.</br></br>Dividends have become second-class citizens in the worlds of corporate finance and investing. Yet their rehabilitation would offset the cult of quarterly performance and stock appreciation and all-else-be-damned. It would change the rules and incentives in the boardroom.</br></br>A return to dividends is also something to which individual investors should pay considerable attention. It would be of immense importance to the coming generation of 401(k) retirees, who are now making a bigger and riskier bet on the stock market than they recognize. But bringing about this change requires a fix of its own - - ending the double taxation of dividends.</br></br>As a topic for debate, dividends are not likely to fire up congressional hearings or light up the television news. They seem old-fashioned, suggesting a bygone era of gentility, perhaps even inherited wealth that has seeped down through the generations. In the boom market of the late 1990s, advocates of dividends came to sound more and more like grumpy old men and women who just didn't get the "new economy" (such as the idea that market cycles had been abolished). A whole generation of younger investors has grown up never even thinking about dividends. But since the markets tanked, options went into disrepute and some high-profile corporate executives got caught misbehaving, dividends are starting to get a little air time. They even managed a walk-on role at last month's Waco economic summit.