Without dividends, there's no reward for buy-and-hold investing, and no reason to pick companies that will actually perform well. Instead anyone who buys is gambling that they'll be able to dump their position at a fortunate time, which leaves them dependent on predicting the irrational market's perception of the company's prospects.
Unfortunately dividends are double-taxed relative to cap gains/interest/etc. Until that's fixed, we won't go back to the era of companies returning money to investors.
Companies can and do return money to investors through stock buybacks. To first order, it is the same as a dividend, except that only the investors who want money get it.
