ABSTRACT
The questions of why firms pay dividends, why investors like dividends, and why investment advisors recommend to buy stock that pays dividends regularly, represent some of the most intriguing problems of financial economics. In this paper, I trace the academic path that led to the intellectual destitution of the current understanding of the problem. I also argue that the love of dividends is something that investors were conditioned to feel for centuries and that only education will change their attitudes. Nevertheless, I predict that academia will still try to find economically rational solutions to the dividend puzzle for many years to come.
The harder we look at the dividend picture, the more it seems like a puzzle with pieces that just don’t fit together.-Black (1976)
