In 1934, Benjamin Graham and David Dodd wrote in their classic "Security Analysis," "The prime purpose of a business corporation is to pay dividends to its owners." It was common thinking that the possibility of stock price increases was speculative, so the main reason to own stocks was to partake in a steady flow of dividends.

But 66 years later, at the end of the 18-year bull market of 1982 to 2000, many investors had almost no interest in dividends. The incredible rise in share prices during that long bull run dwarfed dividends' contribution to total returns. Nobody would seriously say that the prime purpose of owning shares was to get dividends.

As we all know, that bull turned into a bubble, and the bubble burst over the three years from 2000 to 2002. When the dam gave way, it ruined the retirement plans of thousands of people, and it sobered up many investors.

Since 2002, there has been a rekindling in appreciation for dividends and dividend-paying stocks. Investors realize that a dividend stock portfolio can lower risk, grow principal, and steadily increase income over time.

With good dividend-paying stocks, you can actually have both growth and income. Dividends are stocks' secret weapon. Studies show that dividends have accounted for nearly half--or more--of the total return of the stock market over very long terms.

That may surprise you, considering how little publicity dividends get. There is no widely reported dividend index that receives the attention bestowed every day on the Dow, the S&P 500, and the NASDAQ indexes.


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