One of the most interesting occurrences of 2001 was the continuing shift in investor sentiment away from investments perceived as "risky" and toward more conservative investments. In fact, 2001 could be viewed as the "Year of the Dividend" since many investors once again embraced dividends as a key component to their investment returns and as a safety net for their stock prices.

Articles concerning dividends, income and yield investments regularly graced the pages of major financial publications throughout the year. All of these articles cited the importance of dividends in an investment portfolio. This renewed interest in dividends is quite a departure for many of the same experts that pronounced "Dividends Are Dead" just a short 12 months ago. It seems that their declarations of the dividend’s demise were premature, if not prophetically incorrect, given the long-term economic outlook.

Whether dividends are in or out of the headlines is relatively unimportant to our long-term strategy. We have always felt that people should invest according to their objectives. There is room for a variety of investment styles and each has its place based on whether you are building for the future, investing for college, planning your retirement or living off of your investment income.

What is important about the "rediscovery" of dividends is the recognition of their historical importance to the returns investors have achieved. A statistic that impresses even the most diehard dividend detractor is the fact that from 1928 to the present, dividends contributed nearly half of the average historical total return of the Standard & Poor’s 500 Stock Index. During this period of time annual returns averaged just over 10%, of which dividends accounted for 4.4%.

However, in a 20-year bull market, led by fast-growing technology and internet companies with their sky-high share price growth, the value of the lowly dividend was temporarily insignificant. Bull market economists and research analysts scoffed at the out-of-date concept of depleting retained earnings that were helping to drive growth in order to pay cash dividends to shareholders.

Veteran Wall Street Journal reporter, Jonathan Clements, summed up bull market sentiments precisely when he wrote, "Share buybacks have been touted as preferable to dividends, because these buybacks reward shareholders without generating immediately taxable income. For a while, I bought that argument. I don’t anymore. A quarterly dividend commits management to returning cash to shareholders and provides a useful brake on excessive corporate spending. Buybacks, by contrast, seem to involve little more than a half-hearted promise." We agree, and think that a monthly dividend is even better.

Yes, dividends were momentarily irrelevant to many investors intent on building and feathering their nests as quickly as possible. However dividends have always been a critical income source for millions of retired investors. Without this income these folks would not be able to pay their bills, support their families or enjoy the fruits of countless years of hard work.