I’m not talking about companies like that though. I’m talking about large established cash rich companies that pay a dividend in addition to their R&D
One of my favourites is Astrazeneca. Their dividend in % terms is actually quite low at the moment because of the large share price growth in addition to regular dividends.
Also consider the likes of Insurance companies. They rake in large amounts of cash but there isn’t necessarily that much room to grow. Paying a dividend is a better alternative that just sitting on a mountain of cash.
BTW Microsoft do pay a small dividend, as does Apple
Growth stocks are all well and good if you pick the right one. they don’t all grow though!
I personally do operate a mixture of growth and value investing.
The likes of AstraZeneca and insurance companies will fall in my value bracket if the share price is trading at enough of a discount.
My contention is that an investment strategy with a primary focus on dividends is a sub-optimal one for a younger investor - on the right side of 50 one might say!
I completely agree with you. Pretty much every study suggests that, over any period of time, dividend stocks underperform the broader market. If you need a steady income stream from your assets then dividends might be for you but otherwise it makes no sense.
Sure but it depends on what you count as a dividend stock. I would say that a stock yielding a 1-2% dividend does not really qualify as a dividend stock (this assumption forms the basis for most of the studies).
There isn’t a wrong and a right way to invest. I think a mix is probably best for me. But my argument is that it’s not as simple as just saying Dividend stocks underperform growth stocks. For a start it’s a lot easier to pick last decades growth stocks that it is to pick the next decades
True. The div aristocrats index is more growth than dividend index.
Also, taking an arbitrary timeframe to make a point is weak. The s&p outperformed said index between 4.56 pm and 4.58 pm on march 6. 2015. That’s just as irrelevant as your timeframe.
Just accept that a dividend strategy does not result in the same capital growth as a market strategy. That’s scientific consensus.
I think that’s true. Each to their own. But I’m curious about the popularity of dividend investment among young investors. I’m still not clear on the rationale.
The dividend Aristocrat index is made up of stocks that have consitently increased their dividends for more than 25 years. I would say that;s more about dividends that growth. These are the sorts of companys dividend investors are looking for. It’s not just a case of sorting by yield desc.
My timeframe came from the article and is a period of 8 years, not a couple of minutes.
The only thing we can say for sure is no one really knows for sure what the best strategy is for the next eight years
Build a portfolio to support my retirement.
Option 1: invest in non dividend paying companies. When retired sell 4% per year. What if a market crash happens right when I retire? Either sell more or spend less.
Option 2: invest in dividend paying companies. Always reinvest dividends till retirement. When retired spend some of the dividend income and reinvest the rest. Don’t sell anything. What if a market crash happens right when I retire? Buy more.
Or, alternatively, if you are a young investor (20s) like myself:
Invest in growth stocks for the first 20-30 years. Reap larger capital gains. As you approach retirement, post-50, deleverage and invest in bonds and large-cap dividend paying stocks.
Invest in dividend stocks for the entire period up to retirement and likely achieve lower capital gains.
Solid plan, this is what my plan currently is (30).
This is what the recent dividend craze all boils down to, the younger more inpatient generation who want it now. Plus, I can sort of understand the appeal or excitement of buying a dividend stock and instantly having an ‘income’ from it. It’s easy to market these high risk high payout stocks to the younger gen.
The best investment strategy is the one that you can psychologically stick to long term.
Yes there’s data that shows one way that outperforms another but if you can’t sleep at night for worry, during say a downturn, is that a good strategy for you?
For me I’ve found that dividend growth investing, for me and my circumstances, is the one that I’ve found suits me best.
Hey Gerald thanks for the comment. There’s no real great way I choose my stocks other than finding a stock I like and use them looking at there financials. Also I watch a lot of YouTube analysts for example one of my favourite is ‘learn to invest ‘ he does a fantastic breakdown of a lot of stock. Also ‘pcp Ian’. I enjoy investing in the stock market and different companies so I could think of anything more boring than investing in an ETF. But that’s just me. I wish I had more than £250 per week to invest but I love Boeing and Apple.
Well Iam 42 this year so not so young when it comes to investing in the stock market. Which is why I’ve gone down the dividends route. But but I don’t understand why dividend investing and growth investing can’t be interwoven together. For example is Apple a growth stock, dividend stock or both?? I think both. Same with Boeing,Cisco jnj,McDonald’s and many more. At my position in life I refuse to invest in a stock that doesn’t thank me by paying me with a dividend. On the other hand in my other account which is dedicated to my children I have purposely chose growth stock which includes Apple. I have a 15-20 year goal and that is to retire on dividends and if I manage to dedicate £20k per year touch wood I should be ok.
In my view I think will be in a shock within the next 10 years. The biggest generation to live (the boomers) are all starting to retire and they have been the ones pushing this consumerism cycle. When they retire there is going to be a lot of money needed to be taken out of the stock market to fund their lifestyles. People also tend to spend a lot less when they retire as well. You then have the point that there will be a recession, whether it’s next year or in the next 2 years no one can say but it will be happening when we have the largest number of people retiring and taking their money out of the market. Something that has never happened before.
I don’t think the market will recover as quickly how can it? The millennial population is smaller, doesn’t have has much money, is saddled with more debt and higher prices for everything. In my opinion there will be a slowdown in growth. Dividend investing seems like a better strategy to me. I am aiming for a portfolio of 70% dividend stocks, 10% bonds and 20% growth (spread globally). As I get older I will balance accordingly.
Your view is very Europe-US biased. This whole paragraph only applies to maybe 10% of the world population, and these 10% would not have driven growth anyway. If you still fear this, then don’t buy UK companies, but ones with more of an international focus.
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