01-02-2014, 08:05 PM
(01-02-2014, 11:07 AM)hendi_alex Wrote: I wonder what relationship, if any, exists between dividend growth and total returns? It could be that a portfolio that is structured purely toward dividend growth is one that is structured toward chronic under performance. After all, higher dividend payouts are usually a trait of more mature, slower growing companies which can't find more productive use of the cash. On the other hand, smaller cap companies tend to be faster growing and can deploy all of their cash into organic growth that turns out to be the best use of that cash, better both for the company and for the share holder.
I'm a big believer in dividend stocks, but think that getting 100% focused on a DG type portfolio could be counter productive to one's wealth, especially for those with decades before retirement. Does anyone have any thoughts on what allocation, if any, one should give to smaller cap growth companies?
Good questions.
Since time is an important factor in compounding, particularly when one is reinvesting dividends, it could be argued that younger folks who are looking to replace income once they stop working should focus on dividend growth companies and the income that those positions will generate.
On the other hand......
If I was going to put some money into small-cap growth companies, I would find the best mutual funds in that style and sector and invest in them. I did that in my 401k equivalent plan with about 15% of my monthly contributions. Now that I have rolled that into my IRA, it is all in dividend stocks. Those include some mid-cap, but are mostly large cap companies.
I am sure that most financial advisors, all of whom have been trained in Modern Portfolio Theory, would agree with you. That is one of the reasons I am a Self Directed Investor.