Favorable past performance

And when investors look at past performance, some data suggests that a dividend-investing approach has provided a better total return;  see the article on the site ThickenMyWallet (or in PDF doc.1455), which cites a study by Kenneth French ( or in PDF doc.1456), and various studies cited by Tweedy, Browne Fund Inc. ( or in PDF doc.1457).

True believers: Lowell Miller and Tom Connolly

One of the better known advocates of dividend investing is an American,  Lowell Miller, who in 1999 published the book "The Single Best Investment ';  for a review of the book, see the website Bargaineering . This book has influenced many investors; see TheKirkReport . Miller, an asset manager (see his firm's website ) has also published several articles on the same subject, including an article (or in PDF doc.1458) on dividend investing returns between 1993 and 2007. 

Another believer in dividend investing is a Canadian, Ton Connolly. His site DividendGrowth.ca has a variety of information on dividend investing, including a summary ( see also as PDF doc.1460) of past results using this method.Another canadian who believes in dividend investing is Dividend anonymous .

Earnings and dividend growth: the Gordon equation

Dividend investing is based primarily on favoring companies that, given their past results and future prospects, are expected to realize continued, increasing profits and dividends:

The principal behind the technique is that increasing revenues lead to Increasing earnings, which lead to increasing dividends. The increasing dividends, which can grow at a rate that exceeds the inflation rate, then provides an inflation-indexed sources of income. In addition, choosing only companies that have a history of paying dividends increasing eliminates high-risk companies like Bre-X. Dividends must come from real earnings, not speculative hype. Source: the Canadian site Shakesprimer.tk

Assigning great importance to dividends is sometimes attributed by Shakesprimer and others to the theories of a Canadian university professor, Myron Gordon, father of what is called the Gordon equation;  see his website .

The fundamental formula for estimating future returns is known as the Gordon equation or Gordon Growth Model:
Total Return = Dividend Yield + Dividend Growth Rate
The assumptions used in the Gordon equation include a constant growth rate (which is only applicable if the company is in a mature market) and a constant market valuation. Since these assumptions are not likely to hold perfectly, the equation should be used as a rough guide only - do not take it too literally. Nevertheless, it suggests that, as a class, stocks with high dividends will usually have lower growth rate than stocks with lower dividends. Source: Shakesprimer.tk . See also Wikipedia ; Investopedia; and John Walter Russell ( or as PDF doc.1459).

Conclusion  

Enough for the theory of dividend investing. In our next commentary we look at the benefits for the small investor..