Did you know that some stocks pay dividends? This may sound strange to today's investors but it used to be common to explain a stock's price as the current value of expected future dividends. Today it is more common for stocks not to pay dividends with no estimates for if or when they will ever pay a dividend of their profits to the company's owners - its shareholders.

However, there are some "old school" dividend opportunities out there that make good defensive plays for long term traders. For example, take a look at the 5 year chart of Plum Creek Timber Company (PLC - the largest private land owner in the US) below. They pay a very consistent quarterly dividend with an average yield over that 5 year period of 3.9%. Add that to the price appreciation of 80% over that same period and you may begin to understand why long term investors gravitate towards companies that pay their shareholders and dominate their industry.

In many ways, dividends are a hedge against uncertainty. If a company can pay a dividend to its shareholders - you are harvesting a small percentage of the investment's value each dividend pay date. That payment adds up and within a diversified portfolio can really add to your efforts at reducing total portfolio volatility and risk.

Observing how a company pays their shareholders through dividends and return on shareholder equity will tell you just about everything fundamental that you want to know without having to dig through financial statements or being subject to the random winds of change that accompany each earnings announcement. Dividend consistency and yield are the best supplimental fundamental criteria we suggest you add to your stock screening process.

How do you feel about dividends? Do you understand how they work and do you think they are necessary in today's market? Join us in the forums.

For a simple way to get started in fundamental analysis, check out our article "Fundamentals the Easy Way"

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3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."