Dividend vs. Growth Investing

Okay, I'm going to hit this in a variety of ways.

I wish I had, you know, kind of like a diagram almost to share this.

So let's talk about some conventional wisdom.

So first of all, the Instagram social, you know, movement of, you know, hey, we're going to just park this in dividends and live off the dividend income when we're 30 years old, like the fire type movement has a lot of holes in it and really bothers me because what people don't understand is when they are often attracted to dividend paying companies, particularly high dividend paying companies, they give up actual returns to sort of have this dividend.

The most classic example would be Verizon, one of the highest dividend paying stocks.

I'll throw AT&T in there as well.

One of the highest dividend paying stocks, somewhere in the 5% to 6% range for the last several decades.

And you could gravitate to a stock like that and go, wait a second.

I mean, it's going to pay me 6%.

Why wouldn't I just take that? That's unbelievable.

Well, the stocks have done nothing over those same years.

And you've collected your 6%.

And even if you turned around and reinvested it, so you got the dividend, you paid tax on it.

Yes, there's some tax breaks for qualified dividends, but you went ahead and bought the stock.

Let's say it was flat.

Your max return is 6%.

Whereas you could have gotten much more of a greater return just owning the S&P 500 or the NASDAQ 100.

And even if you say, well, isn't that growth investing? Well, let's call the S&P 500 has a dividend as well.

It's not very high, but you have to understand when companies make profit, that profit is called net income.

and they have options of what to do with that net income.

Option number one is peel some of that net income off for shareholders in the form of what's called a dividend.

They can peel all of it.

They can peel some of it.

They can peel a fraction of it, whatever.

Just peel it, man.