I like dividend paying stocks and have been writing about their virtues since early 2009, well before they became the rage on Wall Street. I like them for a few reasons. Most large, mature U.S. companies can pay a decent dividend without hurting their EPS growth, so it enhances investors' total return. Unlike share buy-backs, dividends continue to be paid during recessions, generating cash that can be invested in stocks when they are cheap. Dividends impose more financial discipline on corporate managements than share buy-backs because they have to be paid every quarter and are far more transparent. Unlike dividends, buy-backs can be announced but not executed, or executed but offset by issuance for acquisitions or employee stock options, so the share count does not actually decline. Finally, dividends are convenient -- investors don't need to decide when to sell shares.

But these virtues must be kept in perspective. Using

Twelve years ago, stock market investing was all about earnings growth, while dividends were boring. Now the reverse is true, with investors "reaching for yield" while growth is, arguably, under-priced. Investors need a framework for evaluating the trade-off between growth and yield.

Start with successful mid-size company XYZ Corp., which is growing profitably. Should it pay a dividend? The answer, especially in the current slow-growth environment with a dearth of good investment opportunities, is "No." So long as the return on its new, or "incremental," investment is greater than its cost of capital, it should make those investments rather than pay out capital.

Reaching for Rapid Growth: Risky

Fast forward five years. Now XYZ Corp. is 50% bigger and its growth is starting to slow, but Wall Street still considers it a "growth stock." The analysts with "Buy" ratings believe management's lofty growth targets. If the company dials down