There are two big reasons why you should buy strong dividend-paying stocks. First of all, a stock that pays a dividend has to have the cash on hand. They can't fake it. If a company is paying out 50-60% of its earnings as dividends to shareholders, then they can't rely on bogus accounting to get through tough times like Enron and Worldcom attempted to do. By virtue of paying a dividend alone, a company has to stay focused and disciplined, making sure that it always has the cash on hand to fulfill its obligations to shareholders.
Another important reason why you should consider purchasing dividend paying stocks is because it enables you to purchase additional shares during recessions. Of course, this assumes that you are reinvesting your dividends instead of electing to take the cash payouts. Let's say you own 1000 shares of Coca-Cola. During the recession, the price of Coke fell to about $40 per share. Because your 1000 shares earn $470 every three months, you could plow that money into $40 shares, which would be worth much more once the recession clears. Those $40 shares that you were able to buy with reinvested dividends during the recession are now worth just shy of $70. Not a bad investment.
The folks over at The Intelligent Speculator wrote a fantastic article about the philosophical approach that one should take toward purchasing dividend paying stocks, and I highly recommend that you visit their website by clicking here: http://www.intelligentspeculator.net/investment-talking/how-to-build-a-sustainable-dividend-portfolio/ .
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