Why Not Focus on Dividends?

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Let me start by saying I do not have any problem getting dividends or investing in dividend stocks; they are a nice bonus, but when I get them, I simply roll them over into more stocks.  Keep investing!  I’m also NOT an invest and live off the dividend type.  A good diversified portfolio has a mix of dividend stocks, amongst other growth stocks.  Let me break down some facts so you can make wise decisions with your investments.

What is a Dividend Stock?

Rather than a company investing more money back into the company, they share their profits with their investors.  What does this mean?  Simply put, you get some level of income for investing in the company.  These are usually established companies; some top examples include Verizon, 3M, Walgreens, and several others, according to Yahoo Finance.  Let’s break these 3 down.

Verizon

• Current Price $44.36

  • Paid out last quarter: $1.22 per share.  

  • If you multiply that by the year, you receive a taxable income of about $5 per share for the year

High over the last 5 years: $61

3M

• Current Price: $152.56

  • Paid last quarter: $0.73

  • Full-year payout is approximately $3 per share

  • High Over the last 5 years: $173.48

• Walgreens - I’m going to skip this one because it is a worse story than above and instead use one most of my followers know well...JNJ

JNJ

• Current Price:  $176.82

  • Paid last Quarter: $1.30

  • Full Year payout approximately $5, again taxable income

  • Higher over the last 5 years: $183.15

None of those show an actually good return, stocks are flat or below their high...Why?  Well, they are giving shareholders money over investing in the business.  For JNJ, they have 2.4 Billion shares, so that $1.30 = $3.1 billion each quarter, which is not going back into the company to expand and grow.  Further breaking it down, your return on investment is about 5% in the dividend, which you are paying tax on each year.  If you have been holding the stock for the past 5 years, you also have minimal growth, depending on when you purchased it, but it is under its current 5-year high.  Combining the stock growth and the dividend payout gives you what is called the Estimated Distribution Rate/Yield at about 2.97%...Not a great return, plus you are definitely paying taxes on those dividends.

Yahoo Finance - 20 Stocks with Highest Dividend Right Now

What is a Growth Stock?

Rather than sharing their profits, these companies are taking excess profits and investing them back in the business, in essence helping them to grow.  Top Growth Stocks according to US News include NVDIA, Broadcom, Palantir Technologies, and Advanced Micro Devices.  I know NVDIA will skew the results, so I’ll skip them.  Now, most of these pay minimal dividends, if any

Broadcom

• Current Price: $306.34

  • Dividend Last Quarter: $0.59

  • High over Last 5 Years: 306.24...Low was $32.64

Palantir Technologies

• Current Price: $177.17

  • Dividend Last Quarter: $0.00

  • High over Last 5 Years: 185.76...Low was $7.88

Advanced Micro Devices

• Current Price: $177.51

  • Dividend Last Quarter: $0.00

  • High over Last 5 Years: 186.65...Low was $76.48

Now you are probably thinking the same thing I am...Wow, I missed out.  Maybe you did, maybe you didn’t...  These are all tech stocks and may be part of some mutual fund, but these are high-growth companies.  Rather than sharing out their wealth, they are reinvesting in their business, which, IF invested right, should yield higher returns.  Now it is also important to note that these are also higher risk type stocks, they may take a big swing, and if they invest wrong, they could be another Blockbuster Video...

Top Growth Stocks US News - 10 Best Growth Stocks to Buy for 2025 | Investing | U.S. News

Which is Better?

There is really none that is better, but I do not believe in the live off the dividends mentality.  A well-balanced portfolio will take advantage of both of these.  You should understand the tax implications of dividend stocks and diversified investing to make the most of your portfolio.  You can comfortably pull from your retirement investments with either type.  Do not be afraid to reduce your portfolio to live off of.  The 4% rule is a well-known rule that will manage to keep your investments alive for 30 years or more, when adjusted for inflation yearly.  There are some that are willing to take even higher withdrawals, but the point is not to focus on just the dividends, live off a percent of your savings, and do not invest just because of the dividends; do your research.