Why Companies Raise Dividends?

Dividends represent a stronger commitment to shareholders than stock buybacks.

Stock buybacks can increase earnings per share (EPS) and is another way of increasing yield to investors, but can also be used to manipulate EPS figures.

Dividends are paid by firms with higher permanent operating cash flow, while repurchases are used by firms with higher temporary non-operating cash flow.

Abbott Laboratories (NYSE: ABT) paid a dividend every year since 1924 and raised it for 42 consecutive years.

Eaton Vance Corp (NYSE: EV) has increased its dividend every year since 1980.

An activist investor is an investor that owns 5% or more of a company’s outstanding shares and files as Schedule 13D form stating it wants to make changes in company management.

For an example of shareholder activism, see Dan Loeb’s letters to the Yahoo board of directors in 2011 demanding the resignation of co-founder Jerry Yang.

Serious dividend investors consider the safety of the dividend (the likelihood it will be paid) to be just as important as the yield percentage.