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Weekly eLetter 8/17/2018 – Growth vs Dividends

Do dividend paying stocks generally work out to be a better choice than Growth stocks? This is a question that keeps coming around…and it should. Let’s see why it’s worth talking about.

I’ve seen it again and again over the years, clients see an article somewhere that (correctly states) that many stocks have had a good ‘returns’ story based on their long-term dividend performance. This may be a true statement, but it is often misleading.

Let’s look at 2018 so far in a chart. The chart below shows the return this year, in blue, of a basket of high-dividend paying stocks represented by the ticker RPV. These are S&P500* companies, and are the ones that are value-oriented companies – with high (for today’s world) dividends. Total return year-to-date including those dividends – is 2.72%.  While it’s true that these tend to be high dividends in today’s world, the 2.72% return is less than exciting.

Now have a look at the red line showing, as Paul Harvey used to say; the rest of the story.

The red line shows the return so far this year of a basket of selected high growth companies, also companies in the S&P500 – but companies with small dividends. These companies focus on growing their stock values rather than their dividends (growth companies). You’ll note that the year-to-date return of this group is 11.16%.

Let’s do that in dollar numbers. One hundred thousand dollars in the value bucket paid out more in dividends than the same money in the growth bucket. However, the total dollars returned (including dividends in both buckets) were $2,720 for the dividend bucket and $11,160 for the growth bucket.

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