Dividends or Growth?

[Letts]

So in my research, it seems to be that most investors look for two things in a potential stock:

A) Its potential growth in share price
or
B) The dividend payout

I'm interested to know what you think - do you want a share that is more likely to grow its actual share price and be traded on its value, or do you prefer holding a stock that will provide you with a solid return through its dividend per share?

 

[galumay]

So in my research, it seems to be that most investors look for two things in a potential stock:

A) Its potential growth in share price
or
B) The dividend payout

I'm interested to know what you think - do you want a share that is more likely to grow its actual share price and be traded on its value, or do you prefer holding a stock that will provide you with a solid return through its dividend per share?

It depends on the share and the reasons.

I think it was Warren Buffet who expressed it best, saying that dividends should only be paid by a business when the surplus cash can not be put to better use within the business. His own company Berkshire Hathaway being an example having never paid a dividend.

 

[CanOz]

When i think of dividend stocks and growth stocks i think about totally different universes that are affected differently by the will of the market to take on risk.

You'll get totally different results applying an algorithmic momentum based trading method to each type of universe for good reason.

The difference then, is really you and your appetite for risk.

CanOz

 

[Ann]

When i think of dividend stocks and growth stocks i think about totally different universes that are affected differently by the will of the market to take on risk.

You'll get totally different results applying an algorithmic momentum based trading method to each type of universe for good reason.

The difference then, is really you and your appetite for risk.

CanOz

Maybe, maybe not. There is a very interesting accountancy calculation of compounding interest. it is also a feature of DRPs. Just an amateurs thought.

 

[ROE]

So in my research, it seems to be that most investors look for two things in a potential stock:

A) Its potential growth in share price
or
B) The dividend payout

I'm interested to know what you think - do you want a share that is more likely to grow its actual share price and be traded on its value, or do you prefer holding a stock that will provide you with a solid return through its dividend per share?

I prefer stock that pay dividend as that is a sure way I can get something back while holding and if for some reason or another directors stuff up the business you got compensation for part of your cash back via dividend payment...

plus you need cold hard cash to pay dividend so it less likely fall for creative accounting trick.

Capital appreciation is assure if business keep increase its market and profit regardless
if it pay dividend or not so I prefer it throws me some dividends.

There are other train of thought that said if the business generate something like ROE of 20%+ a year it better keeps all of its cash and reinvest in the business....but I been around this sound good in theory but most of the time management just waste the cash ...so throw it to me via dividend so there is less opportunity for them to waste

 

[So_Cynical]

A) Its potential growth in share price

and

B) The dividend payout

 

[odds-on]

I prefer stock that pay dividend as that is a sure way I can get something back while holding and if for some reason or another directors stuff up the business you got compensation for part of your cash back via dividend payment...

plus you need cold hard cash to pay dividend so it less likely fall for creative accounting trick.

Capital appreciation is assure if business keep increase its market and profit regardless
if it pay dividend or not so I prefer it throws me some dividends.

There are other train of thought that said if the business generate something like ROE of 20%+ a year it better keeps all of its cash and reinvest in the business....but I been around this sound good in theory but most of the time management just waste the cash ...so throw it to me via dividend so there is less opportunity for them to waste

+1. Very wise words.

A relative who has owned a number of small businesses over the years advised me that one of his biggest mistakes was not removing cash from the business into his own pockets before things went wrong due to ambitious growth plans/change in business conditions...pay the dividend please.

Master long-term allocators of capital are a rare beast. If anybody reckons they have found the next Berkshire Hathaway, please PM me the details of the company and do not post the company details on this forum.

Cheers

 

[craft]

I’m indifferent - A buck is a buck.

A single future payment (sale price) has a present value as does an annuity (dividend stream).

That said the dividend stream has two advantages – liquidity and the proverbial “bird in the hand”. This you can account for with your discount rate.

Tax treatment of the two also effect the net flows.

The real nirvana is a growing dividend stream. (not OR but AND)

 

[HyperText]

I would like to point out a couple of reasons why dividends are more attractive to share holders than capital gains.

Most large companies pay a fully franked dividend. This means they have already paid tax on their income at a rate of 30% and you (the shareholder) will need not need to pay any tax on the dividend if your tax rate is 30%. If you are taxed at a higher rate you will need to pay the difference (small amount) and if you are taxed at a lower rate the ATO will pay you the difference which will generate a tax return. Any capital gain on the stock is taxed at a full rate, or a half rate if owned for over a year which is a higher rate than any franked dividend. This makes the dvidend more attractive to the shareholder than capital gains for tax reasons.

A capital gain is definately not gaurenteed, share prices can go down which can even result in a capital loss. A dividend from a blue chip stock is more likely to be something you can rely on. Capital gains are risky and dividends are quite a secure return on investment.

When you receive a dividend from a company it is given as a cheque in actual currency which is backed by the Reserve Bank of Australia. Any return you get from a dividend that you put in a bank is money you will see tomorrow, however any money made from capital gains is 'on paper' until you sell the stock. This amount can fluctuate and there is no gaurentee that you will see it tomorrow. When you get a dividend, however, you can also earn interest from it as you put it into a bank account which does not happen with capital gains.

In summary capital gains are risky, but profitable while dividends have tax advantages and are more solid and secure.

 

[blue0810]

I’m indifferent - A buck is a buck.

Exactly. Even if I have to pay dividend (short)

 

[JTLP]

Can't remember where I read the article - somewhere out of America - but it was along the lines of beware of a company that pays out higher dividends with no growth; they had this along the lines of trapping investors who felt they were being rewarded but essentially the company was going nowhere - just wanting to maintain a certain SP.

As for me - I'm from the camp of give me capital growth with dividend growth along the way...CCP fit this bill for me nicely!

 

[HyperText]

As for me - I'm from the camp of give me capital growth with dividend growth along the way...CCP fit this bill for me nicely!

I am sure every investor will be happy with capital growth with dividend growth along the way. The question isn't whether you would like both.

 

[JTLP]

I am sure every investor will be happy with capital growth with dividend growth along the way. The question isn't whether you would like both.

Ok let's put it like this.

I'd go for capital growth. Why?

If you buy a share @ $1 and a full 365 days later it is $1; but gives you a yield of 5%; you've got your 5% money in the bank (don't worry about inflation erosion etc - simple exercise).

But what if my share is $1 and a full 365 days later it is $1.10. I've just banked 10% (yes take out brokerage etc etc).

These are crappy assumptions that don't take a lot into account; but on basic principle I'd aim for capital growth as most of the time your money is better sitting in a cash account if you don't like the risk.

 

[Klogg]

Ok let's put it like this.

I'd go for capital growth. Why?

If you buy a share @ $1 and a full 365 days later it is $1; but gives you a yield of 5%; you've got your 5% money in the bank (don't worry about inflation erosion etc - simple exercise).

But what if my share is $1 and a full 365 days later it is $1.10. I've just banked 10% (yes take out brokerage etc etc).

These are crappy assumptions that don't take a lot into account; but on basic principle I'd aim for capital growth as most of the time your money is better sitting in a cash account if you don't like the risk.

The only problem with that is it assumes you can maintain your ROE while re-investing all funds... Chances are you'll hit a point of diminshing returns very soon if you do that.

 

[HyperText]

Ok let's put it like this.

I'd go for capital growth. Why?

If you buy a share @ $1 and a full 365 days later it is $1; but gives you a yield of 5%; you've got your 5% money in the bank (don't worry about inflation erosion etc - simple exercise).

But what if my share is $1 and a full 365 days later it is $1.10. I've just banked 10% (yes take out brokerage etc etc).

These are crappy assumptions that don't take a lot into account; but on basic principle I'd aim for capital growth as most of the time your money is better sitting in a cash account if you don't like the risk.

That is an interesting opinion. You will be taxed at a higher rate for the capital growth than the dividends. With the situation you have given you have said there is potential to make more money in capital growth than dividends. Having said that, a potential invester should also be concerned about the security of money. You like capital gains because they are exciting and profitable but have you realised that you can also lose money leaving you with less than you started?

 

[matvex]

That is an interesting opinion. You will be taxed at a higher rate for the capital growth than the dividends. With the situation you have given you have said there is potential to make more money in capital growth than dividends. Having said that, a potential invester should also be concerned about the security of money. You like capital gains because they are exciting and profitable but have you realised that you can also lose money leaving you with less than you started?

Wouldn't diversification be the answer? having quality stocks in the portfolio with cap growth prospects and others with promising dividend yield prospects?

 

[Klogg]

Wouldn't diversification be the answer? having quality stocks in the portfolio with cap growth prospects and others with promising dividend yield prospects?

Diversification is only the answer if you can't be bothered gaining any real insight into your investments... There's less risk involved in knowing everything there is to know about 1 company, then there is buying 15 random companies.

If diversification is your aim, buy the index

 

[sydboy007]

I think you need a balance of both.

If you focus purely on growth you tend to have a lot more risk and volatility in your portfolio.

If you go for dividends, you can miss out on the next big thing, or would have probably missed the mining boom as you'd have bought in too late.

This article highlights some problems you can face by focusing only on yield

http://www.thebull.com.au/premium/a/38458-the-great-yield-chase-.html

 

[saundy69]

Dividends or Growth?

Whats your investing goal? Please dont say "to make money".

A preference is usually shaken out as the result of a strategy. For someone retiring soon a Growth strategy may be risky. For a 30yo without much capital, Growth is the way to go, maybe even geared Growth.

Your well structured approach to the market will answer your Growth vs Dividend question.

 

[13ugs13unny]

I think you need a balance of both.

Agree to a point,

But I lean more towards dividends if you have margin loans to service debt as well, investors would be "crazy" not to have some portion of margin loan to claim interest rates for their investment.

Dividends are a good shield for dips in the markets.

But overall I think dividends, because when the market turns bullish you get "to eat your cake as well".

If the market was bullish enough for IPO's then I would go for growth.

Not investment advice unlike face book, my strategy would be to let the hype pass then buy on the dip, then go for growth.

Dividends are great for Self Managed Super-funds, because the dividends can {depends on your circumstances} actually give you a tax refund if you hold the shares for longer than 45 days as per tax rule, hence why blue chips stocks with juicy dividends are bullish.

All CEO's have to do is increase their dividends for blue chip companies and their market cap seems to be increasing more than the increasing dividend on offer.