How important are dividends vs growth of stock value? (bonds, mutual funds, cash)
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Do you look for dividends and a relatively stable stock price with modest growth or something that has the ability to more rapidly increase in value?
I don't think it should be a either/or. Ideally, you want both.
I think I read somewhere that dividends account for 40% of the long term returns of the S&P 500 stock index, so they are important. There are always going to be individual stocks that perform great that don't pay dividends, but they are the exception and not the rule.
Dividends are secondary to me, meaning I will look for a stock with growth and if it pays a dividend it makes me a little bit more happy. Some stocks I would rather they reinvest their cash to make the company grow more instead of paying out dividends. Apple is an example. I would have much rather saw them buy Netflix or Tesla when they were hurting rather than pay dividends or buyback shares.
It's best to separate your dividend holdings from your growth holdings.
If you try to combine them, you'll end up with a 1-2% yield which is
not going to protect you at all from market fluctuations or vulnerabilities.
Consider preferred stock or corporate bonds for yield, not common stock.
I think I read somewhere that dividends account for 40% of the long term returns of the S&P 500 stock index, so they are important.
That has always been a misleading & misused stat, IMO. Dividend yields used to be higher than they are now, and so yes, historically they've accounted for a large chunk of total returns. But that doesn't mean much because it can be argued that if those stocks had NOT paid any dividends, total returns would NOT have been significantly any different. It just means that capital gains would then have accounted for 100% of the return rather than just 60%.
Quote:
There are always going to be individual stocks that perform great that don't pay dividends, but they are the exception and not the rule.
That has always been a misleading & misused stat, IMO. Dividend yields used to be higher than they are now, and so yes, historically they've accounted for a large chunk of total returns. But that doesn't mean much because it can be argued that if those stocks had NOT paid any dividends, total returns would NOT have been significantly any different. It just means that capital gains would then have accounted for 100% of the return rather than just 60%.
I disagree with that too.
I agree ,the total returns would have been the same with or without the dividends assuming investor sentiment remained the same on those stocks.
but the reason that quote is spewed is the s&p index numbers as stated do not include dividends in them.
the s&p index is only measuring market capitalization and takes a dip with a payout..
the actual total return is about 1/3 higher when dividends are figured in so that is where that quote comes from..
I believe the dow does not include dividends either so the actual total return is higher than the index itself suggests.
I believe the dow jones company does have a dow total return index but it is separate from just the dow index .
Last edited by mathjak107; 01-23-2014 at 09:20 AM..
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