A bit more of the "wisdom compendium"

Why should one consider dividend-producing stocks as a basis for long term investment. First, there's evidence that these stocks, as a group, outperform those that don't pay dividends. One can speculate why that is the case, but it appears to be true.
Second, they allow you, the owner, to decide how you'd like to allocate the income that dividends represent. You can DRIP, or selectively reinvest, hold cash, take cash and pay living expenses. Eventually, all of us will have to draw against that retirement account.
I, for one, don't want to have to start converting investments into cash producing vehicles at retirement, or sell a piece of the portfolio to pay the bills. I'm developing my cash-producing machine now, so when it's time to flip the switch to distributions, the machine is already in place and mature.

The other is that dividends allow one to compound the growth in the position. A company that pays no dividends may invest all earnings in excess of expenses back into the income producing activity. Or, they may buy up stuff that isn't relevant to the business. They may pay way too much for that stuff. They may buy back their own shares at high valuation points. I wouldn't buy the stock when it's overvalued!? They may make outsize options grants to executives. They may hold cash in overseas accounts to avoid US taxation. They may do any number of things, except help you grow your position with more cash. Changes in valuation are un-realized gains or losses. They may be here today and gone tomorrow. Cash in your hand is tangible. 

So dividends are nice. What about really big dividends?  Remember, the company has to have cash to pay a dividend. It could issue stock, but if that dilutes the value of the existing stock, how can that help?  Really big dividends mean the cash flow has to be large, and secure, or the dividend isn't secure. Most people think the sweet spot for dividends is around 3%, with payout ratio below 50%, except for certain classes of company like utilities, whose regulated rates produce earnings that are extraordinarily predictable, and REITS who are required by law to distribute 90% of their profits to shareholders.  For these types of company, the growing value of your position is even more dependent on re-investment of dividends, as retained earnings within the company would be the engine for expansion and earnings growth. If you're giving it all away to shareholders, there isn't that much left over to invest in the business.

more on this later....