High Dividend Yield vs. High Dividend Growth

[EricL]

I've been working on this article for the last month or so and finally got it published this morning. It covers the high yield vs. high growth debate and what may be best for your portfolio. I put together tables for 10YR, 20YR, and 30YR projections for YOC, total income, and total returns for varying yields of 1-6% and growth rates of 0-20%. I think it turned out pretty well, and was fortunate to get an Editor's Pick on it for the first time in some time.

High Yield Or High Growth: Which Belongs In Your Portfolio?

Hope you enjoy!

[DividendGarden]

I left the following on the article, but will post it here for the sake of discussion:

Great article, and I appreciate the research that went in to it.

The takeaway statement for me was the following: "In other words, a 1% yielding company that grows its dividend and earnings at 9% annually has the same expected 10% annual returns as a 6% yielding company that grows at 4% or a 3% yielding company growing at 7%."

To me, I prefer lower-yielding, higher growing stocks (think DIS, V, etc) as opposed to higher-yielding but slower growing stocks (such as T, SO, etc), although my portfolio is about 50/50 between the two. I generally take dividends from the slower growing, higher yielding companies and invest in the lower yielding, faster growing companies. The benefit of this strategy is that I will realize more capital gains in addition to the dividend income.

But, to each his own. Know thyself. Thanks for the article.

[DividendGarden]

Although, to be fair, T has really moved this year. It's up from $32 to $41, or 30%!

[EricL]

(06-24-2016, 11:51 AM)DividendGarden Wrote: I left the following on the article, but will post it here for the sake of discussion:

Great article, and I appreciate the research that went in to it.

The takeaway statement for me was the following: "In other words, a 1% yielding company that grows its dividend and earnings at 9% annually has the same expected 10% annual returns as a 6% yielding company that grows at 4% or a 3% yielding company growing at 7%."

To me, I prefer lower-yielding, higher growing stocks (think DIS, V, etc) as opposed to higher-yielding but slower growing stocks (such as T, SO, etc), although my portfolio is about 50/50 between the two. I generally take dividends from the slower growing, higher yielding companies and invest in the lower yielding, faster growing companies. The benefit of this strategy is that I will realize more capital gains in addition to the dividend income.

But, to each his own. Know thyself. Thanks for the article.

Thanks much for sharing your thoughts. I don't even want to know how many hours I put into this, has to be at least 30 or 40 over the last month, so I'm glad that came through in the presentation.

(06-24-2016, 11:53 AM)DividendGarden Wrote: Although, to be fair, T has really moved this year. It's up from $32 to $41, or 30%!

Don't worry, I've noticed! It's up to my second largest position now!

[cannew]

I've found it's the middle ground that works best. Above average yield, with above average growth, Not high yield. The problem with low yield and high growth, is the assumption the high growth can be maintained for 10 or 15 years.

[EricL]

(06-29-2016, 12:30 PM)cannew Wrote: I've found it's the middle ground that works best.  Above average yield, with above average growth, Not high yield.  The problem with low yield and high growth, is the assumption the high growth can be maintained for 10 or 15 years.

I submitted Part II of the series last night, which highlights 9 different companies across the yield/growth spectrum.

For the most part I agree with your thoughts on shooting for the middle, but there are cases where double-digit growth can continue for a long time. ROST, TJX, CASY, TSCO, CHD, WBA, CVS are a few that immediately come to mind.

[EricL]

Here is Part II:

High Yield Or High Growth? Real-World Vs. 'The Matrix'

[cannew]

(06-30-2016, 10:08 AM)EricL Wrote: For the most part I agree with your thoughts on shooting for the middle, but there are cases where double-digit growth can continue for a long time. ROST, TJX, CASY, TSCO, CHD, WBA, CVS are a few that immediately come to mind.

Half of those have less than 1% yield and the highest at 1.75%  Give 15 yrs with 10% growth 1% becomes 3.79% while 1.75% becomes 6.65%

I'd rather start with 2.5% to 4% with 5% growth and after 15 yrs be 4.95% to 7.19%.  The odds favor 5% growth to 10%.

My objective was Income growth when I was in the accumulation phase. Capital growth follows div growth and the low yield\high may have greater capital appreciation, assuming they can continue at those high rates and the capital grows at the same rate.

[EricL]

Just published an article discussing some of the higher growth opportunities from the Dividend Champions List.

Finding The Growth In DGI: Dividend Champions

Enjoy!