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Originally Posted by AU Doc
Thanks for taking the time to reply to everyone’s questions. I know the same questions get asked over and over.
That said, I’m through the first hundred or so pages and haven’t run across my particular question. At least not that I recognized, anyway.
Let me try again. It looks like the average dividend yield across the market is between 2% and 3%. Take Home Depot for example. It’s current dividend yield is 2.13%, which isn’t enough to warrant a buy on the dividend alone. It is however benefiting from the current housing growth and the stock price has been on a steady climb.
Another example is Ford. It pays a dividend of almost 5%, but the stock price has been on a decline since 2014. So again, it doesn’t fit the criteria.
Verizon has a nearly 6% dividend, but the stock has been mostly flat for the past five years. So it’s beating inflation, but still well behind the market.
I suppose what I’m saying is so far the intersection of stocks with a 5% dividend and a flat to increasing share price has been a bit like finding a unicorn for me  Based on my difficulties so far, I’m wondering if I’m misunderstanding some of the terminology, or if these stocks are just difficult to find.
Thanks again! Just trying to put all the pieces together here |
What you are describing is normal. In most cases, the stocks that pay the higher dividends have slower stock price appreciation. It is going to be difficult to find a stock with a 5.0% dividend that is a "growth" stock. There is usually a trade off between the dividend rate and growth or appreciation rate of a stock.
What is best (high dividend vs. high growth) is very dependent on your particular situation. If you are not retired and don't need the dividends to live on, I believe total return is the most important thing to concentrate on.
If on the other hand you are retired and need the dividend income, finding the stocks with higher dividend rates may be more important.
Another thing to consider is the dividend growth rate of a stock. For example, AT&T (T) pays a current yield of 5.65%. Over the last ten years, it has had an average dividend increase of 3.8% per year and more recently has been closer to 2.5%. Johnson and Johnson (JNJ) pays a current yield of 2.42%, but its dividend has increased an average of 8.0% over the last ten years. JNJ currently pays a much lower dividend than T, but it has grown its dividend at a much faster pace. Additionally JNJ stock appreciation has been much greater than T's stock price appreciation.
Total return for T over the last 10 years was 7.93% per year, while total return for JNJ was 13.2% per year. As you can see T's current yield is much higher than JNJ, but its total return has been much lower.
If you are a young investor trying to grow your money at the fastest rate possible, I believe a stock like JNJ would be a better choice. If you are retired and needed to live off of your dividends, a stock like T would probably make more sense.
The stocks I selected are just real life examples and are not recommendations, but you should be able to research stocks that interest you and make similar comparisons.