Investors looking for growth, which includes individuals making plans for retirement can underestimate how important dividends can be. Many investors consider dividends as merely “the icing on the cake”, and they are often overlooked in the pursuit of capital growth.

Investors should pay close attention to dividends as they can add significant additional returns over and above the potential growth in the share price.

Over the long term the compounding effect on receiving dividends could make a big difference to the return on an investment.

An investment in the FTSE 100 over the past 20 years would have returned 110% without the additional effect of dividends, but a more considerable 341% with reinvestment. Take into account that dividend yields were under 4% for much of that period of time, it is clear that the small additional return from dividends makes a big difference over time.

If you were to look over the really long term, the difference dividends can make is spectacular.

'Triumph of the Optimists', a 2002 study of 101 years of investment returns, reckons that 92% of real returns from an investment made over 101 years is attributable to dividends.

At a time when share prices are relatively cheap it may be possible to take advantage of a high yield in addition to a capital return as well.

Companies that are able to continue to pay dividends seek to protect this, even when times may be tough and their share price might be depressed in the short term. Regularly paying out, dividends can therefore smooth some of the volatility of investing in shares if they are maintained throughout volatile periods.

Getting appropriate investment advice is always the most important aspect of any form of investing.

It is important to make sure that any investment you might have meets your attitude to investment risk. For more information about investment advice please feel free to look at our website www.consilium-ifa.co.uk.

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If you are considering investing it is important to remember that the value of your investment and the income generated could fall as well as rise and that there is no guarantee you will get back more than you invested.