Dividend details

QHow and why do companies decide to pay dividends? — H.T., Gainesville, Florida

AIf a company’s management expects reliable cash generation in the years to come, it may decide to reward shareholders by paying a cash dividend — and it won’t want to stop doing so, as that would suggest trouble. That dividend will likely be a portion, but not all, of earnings, and will typically be a fixed sum paid each quarter. Healthy and growing companies tend to increase their payouts over time, often once a year.

Aside from paying dividends, companies may also deploy earnings to pay down debt, buy another company, build more factories, hire more workers, buy more advertising and so on. Young or quickly growing companies often don’t pay dividends, but instead reinvest all that money into growth.

To see a list of promising stocks we’ve recommended, many of which pay dividends, check out our Motley Fool Stock Adviser service (at Fool. com/services).

QWhat subjects should I master to become a good investor? — P.L., Charleston, South Carolina

AGaining a solid understanding of financial accounting will allow you to make sense of companies’ financial statements and spot red flags such as shrinking profit margins or rising debt.

Books such as “How to Read a Financial Report” by John Tracy and Tage Tracy (Wiley, $23) or “Financial Statements: A Step-by-step Guide to Understanding and Creating Financial Reports” by Thomas Ittelson (Weiser, $20) can help. Peter Lynch’s “One Up on Wall Street” (Simon & Schuster, $18) and Philip Fisher’s “Common Stocks and Uncommon Profits and Other Writings” (Wiley, $25) cover investing well.

Simply reading broadly — about psychology, science, history, business and more — can also make you a savvier investor.