: Why are dividends seen as a good thing for investors? Why are dividends generally seen as a good thing for investors? For example, you can look at this Barrons article where it states Broadcom (ticker: AVGO) plans to boost

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Yes, on the ex-div date the stock exchanges reduce share price by the EXACT amount of the dividend, resulting in an equal amount of capital loss.

A common misconception among new or unsophisticated investors is that a dividend is a profit. This is magnified by authors and web sites that promulgate the theory that Dividend Capture provides “free money”.

To add insult to injury, if in a non sheltered account, they are taxed as income and that has bled over into considering them income.

Benefits? Yes. If your dividend is reinvested, you get some more bang for the buck via compounding. If not reinvested, by receiving a portion of your own capital back, your dollars at risk is lowered.

Dividends do not produce Total Return. Only share price appreciation provides that so you should be agnostic about them. One should invest in financially healthy companies that are growing. If they pay a dividend, fine. If not, no big deal.

EDIT:

I note with humor that this answer received some down votes. My guess is that the four of you are among the many who do not understand the ex-dividend process. So let's try a real world example and see if minds can be enlightened. Dividends will not be reinvested because that requires multiple calculations.

If you bought AT&T on 6/23/2015, you paid .91

It closed on 10/26/18 at .09

You have a paper loss of .82 per share. You are down 2

Since 6/25/15 you have received .82 per share (2). If this was done in a sheltered account, you have broken even. If not, you have paid taxes for the "privilege" of receiving some of your investment capital back. You lost money. To keep this example simple, let's ignore taxes.

Dividends received in 3.35 years? 2

Total return from 6/23/15 to 10/26/18? ZERO

If AT&T were to magically rise to .91 before the next dividend, you would be able to sell your shares and break even (ignoring commissions). Your 2 in dividends would then be true income, aka a profit.

Some updated numbers? AT&T closed yesterday at .91, down .00 from purchase price. You received .82 in dividends so you have a position gain of 82 cents. IOW, share price was reduced by .82 by the stock exchanges over the past 3.35 years because AT&T has recovered 82 cents of that amount. Only 82 cents of the .82 received is profit or if you wish, income.

Repeating what I wrote, dividends do not produce Total Return. Only share price appreciation provides that (82 cents in the updated numbers). Because of that, you should be agnostic about dividends. One should invest in financially healthy companies that are growing. If they pay a dividend, fine. If not, no big deal.

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I haven’t studied the specifics around Broadcom’s announcement, so this is just a generic answer to the question in the title.

Two reasons:

Fundamentals - investors want returns, and dividends are a legitimate form of profit sharing.
Business life-cycle - some businesses get to the point of diminishing returns for capital investment while taking in consistent profits (eg at least conceptually, infrastructure companies such as utilities and toll roads). Dividends are a way to return those regular excess profits to investors.

There is the risk of becoming obsolete and overtaken without appropriate company renewal. But when there are bumper profits exceeding what management can profitably and sensibly deploy, shareholders welcome having the excess funds in their own hands.

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Paying out dividends reduces a company’s net worth by a corresponding amount, and that reduction is reflected in the share price. E.g. a company paying a dividend of 1c per share suffers a drop in value of the shares by 1c because the shares are literally worth 1c less after the dividend has been paid.

However, there are times one doesn’t wish to sell at all: sentimental value, maintaining a critical-percentage shareholding, unwilling to crystallise a capital loss (or gain, for that matter), etc.

Getting a payout via dividends becomes an important means of participating in profits without selling any of the shares. The capital loss (attributed to the dividend causing the share price to fall) is then deemed an acceptable trade-off.

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Investors have different targets, and for some a continuous stream of dividends is more important than the value gain of the share itself.

For example, AT&T is a well known provider of 50 cent dividends per quarter; so if you buy them today for 30$, they will produce 6.67% per year continuous income stream: 4 * 0.50$ / 30$ = 6.67% (of course assuming they don't go bust or change that). If you are retired and want to live from that quarterly amount, this is a good solution.
Note that for the retiree in the example it does not matter much how the share value develops- of course, he prefers if they go up to 50$, but he also gets his income stream if they drop to 10$ (again, unless they go bust or change that - this is typically handled by diversifying, and buying not just AT&T, but multiple unrelated shares with similar behavior).