Choosing between dividends and growthWednesday, October 28, 2009 11:16 am
If you are wondering what to pick between dividends and growth, your quest ends here! Around three decades ago, it was usual to believe that a stock’s worth was derived from the low-priced total of projected future dividend payments. Nevertheless, during 1980s and 1990s substitute theories emerged and there is still an important question about whether modifications in the estimates of future dividend payments can totally explain the volatility of a stock’s cost. There are still a lot of questions about what actually drives costs.
The change in approach towards the value of dividends during this time has added a disgrace to investors seeking dividend yielding stocks. The counter dispute often focuses on how much better it would be to seek growth stocks over dividend paying ones. This dispute is not really suitable. Actually some diversified indexes of dividend yielding stocks like the Dow Jones Select Dividend Index would have outdone the S&P and the Russell 2000 small cap index by nearly hundred percent over the past decade. Dividend yielding stocks outdid even when compared to other growth indexes based on lower instability to returns.
To pick between a dividend yielding portfolio of stocks and a growth based portfolio is not a decision that has to be carried out. It seems totally realistic that growth and income can and does subsist alongside.
There are numerous ways to handle developing a portion of oneâ€™s portfolio. It is feasible to seek out and choose individual stocks and include them to a diversified list but it may be simpler to just purchase an ETF that trades an index according to dividend yielding stocks such as the iShares dividend index fund. A dividend indexed ETF could be just the ticket by applying options on the index to counteract risk, speculate and leverage the trend for traders seeking prospects to take more risk.
Thus, both have their respective suitability and you need to choose according to your portfolio.