Dividends or No Dividends?

Q Why do some companies pay no dividends? Are they worth investing in? — P.T., Elyria, Ohio A They can be. A company can use its earnings to reinvest in its business, pay down debt, buy back shares (reducing their number and making remaining shares more valuable) and/ or pay shareholders a dividend, among other options. Some companies, typically smaller, younger or faster-growing ones, often need to spend any earnings on growth. Amazon.com and Facebook, for example, pay no dividend, while Starbucks only started paying one in 2010. Clearly, many great companies have been or are without dividends. Still, companies that pay dividends are worth including in your portfolio because they offer a relatively reliable income that tends to increase over time as long as the underlying companies remain healthy. Struggling companies may reduce or eliminate their payouts. Strong, growing companies offering little or no dividend can still reward you well, through the increases in their stock prices. To see many stocks we have recommended, some of which offer dividends, try our “Motley Fool Stock Advisor” newsletter via fool.com/services. *** Q How do I bonds protect you from inflation, and are they good investments? — J.J., Manteo, North Carolina A I bonds feature interest rates that are tied to inflation. Their interest rates have two components: a fixed rate that lasts for 30 years and an inflation rate that changes every May 1 and Nov. 1. The latest I bond rate is 2.58 percent, through April. If you’re looking for bond income and you expect inflation to rise in the future, I bonds can help you keep up with it. I bond rates have been as high as 7.5 percent and as low as zero, with a median rate near 3.4 percent. Want more information about stocks? Send us an email to foolnews@fool.com.