Should You Prioritize Dividend Yield or Dividend Growth?
FAQ 47
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Investing is like a journey; like any journey, the path you choose should align with your destination. When it comes to building a dividend portfolio, the choice between focusing on high dividend yield or high dividend growth is a pivotal decision. In this newsletter, we'll explore the key considerations to help you make an informed choice.
High Dividend Yield: Your Steady Income
In the world of investing, high dividend yield refers to the percentage of income that a stock or investment generates in the form of dividends. Imagine a high dividend yield as a steady stream of income from your investments. It's like having a tree that regularly drops fruits into your basket. These are typically well-established, mature companies with a history of consistent payouts. Historically, a high dividend yield is typically anything above the average income provided by the S&P 500, which is around 2-4% so anything exceeding this range can be considered high
High Dividend Growth: The Growing Orchard
High dividend growth, on the other hand, growth is like planting a tree that starts small but grows rapidly, producing more and more fruits as time goes by. It typically involves companies that increase their dividend payouts annually at a rate well above the inflation rate and often exceeding the S&P 500's average annual growth rate of about 8-10%. Companies demonstrating this level of dividend growth are often viewed as strong performers in terms of returning value to shareholders and may be attractive to investors seeking both income and potential capital appreciation.
Few examples of Dividend focused ETFs:
High Dividend Yield: