Few investors remember the words of famous value investors Graham and Dodd who wrote that “The prime purpose of a business corporation is to pay dividends to its owners.” Returning money to shareholders prevents managers from wasting it on investments that may not prove profitable for the company. Furthermore according a study by Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School found that investors who put $1 in U.S. stocks at the start of the century were paid back $582 with reinvested dividends, adjusted for inflation. Price increases alone would have given an investor just $6 after that span, less than the $9.90 from holding long-term government debt, according to the study.

Dividend Investors have been under fire recently, with a barrage of negative news hitting the wires almost daily now. Friday was especially bad for many dividend investors, when General Electric (GE) announced a dividend cut from $0.31 to $0.10 share. It has been widely speculated that this industrial conglomerate will cut its dividends since early October 2008. Despite the reassurance from the CEO that this won’t happen, dividend investors were disappointed with a dividend cut. This was the fourth dividend cut in the dividend aristocrats index so far in 2009, versus 14 which have increased their dividends.

With dividend payments on the S&P 500 expected to fall by 18% in 2009, it all seems as if dividend investing is a strategy destined to fail in the current market environment. Despite all the gloom and doom, several companies still rewarded their shareholders with an increase in their annual dividend payments.