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.

My point is this: dividends are nice, but more return in my pocket is still more return. I (and most clients, I believe) would prefer the ‘more return’ investment, and that is why we have focused on holding high growth companies, instead of high dividend-paying companies so far this year. Perhaps next year will be a year to focus on dividend-paying (value) companies.

We’ll see.

Market Minute – 8/17/2018 The Crystal Ball

The economic news cycle has been pretty negative for the past few months — one volley after another in a seemingly endless series of trade skirmishes. At some point that will change as bit by bit improvements on the trade front start to surface, perhaps before the mid-term elections.

When that happens, the continuing strong economy may drive stock prices higher — perhaps sharply higher — before the end of the year. The crystal ball, as usual, is somewhat cloudy, and the timeframe is unknowable. On the other hand, corporate earnings are ‘shooting out the lights’, and corporate profits tend to show up in markets with increased values of stocks and markets. This is what we expect to see.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.