What is the Puzzle in “The Dividend Puzzle”?

Abstract

The questions of why firms pay dividends, why investors like dividends, and why investment advisors recommend buying stock that pays dividends regularly are some of the most intriguing problems in financial economics. The author traces the academic path that leads to the poor current understanding of the problem. He argues that the love of dividends is something that investors have been conditioned to feel for centuries, and that only education will change their attitudes. This does not mean that academia will not still try to find economically rational solutions to the dividend puzzle for many years to come.