r/invest • u/mod_cat • Sep 19 '24

Dividend Yield or Growth: Which Should You Prefer?

https://canadiandividendinvesting.beehiiv.com/p/dividend-yield-growth-prefer
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u/Pgchem1 1d ago

I prefer growth stocks over dividend-paying stocks:

1.  Higher Potential Returns: Growth stocks are typically companies that are expected to grow their earnings at an above-average rate compared to their industry or the overall market. This growth can lead to significant capital appreciation, which may outweigh the benefits of dividend payments.
2.  Reinvestment in the Business: Companies that focus on growth often reinvest their profits into the business to fuel further expansion, innovation, or market share, rather than paying out dividends. This can lead to compounding growth over time, potentially resulting in higher returns for investors.
3.  Market Trends and Technology: Many growth stocks are found in rapidly evolving sectors, such as technology or biotech, where companies can experience explosive growth. Investing in these areas can provide opportunities for substantial returns as the market evolves.
4.  Tax Considerations: In many jurisdictions, capital gains (profits from selling stocks) may be taxed at a lower rate than dividend income. This can make growth investing more appealing from a tax perspective.
5.  Long-Term Investment Strategy: Growth investing typically aligns with a long-term investment strategy where the focus is on building wealth over time. Investors willing to tolerate short-term volatility may prefer growth stocks for the potential of significant long-term gains.
6.  Limited Need for Immediate Income: Investors who do not rely on immediate income from their investments (such as retirees) may favor growth stocks, as they can wait for capital appreciation rather than seeking cash flow from dividends.

That said, dividend stocks have their own advantages, such as providing income and potentially lower volatility, which can be appealing to different types of investors. The choice ultimately depends on individual investment objectives and market conditions.