- Our Firm
- Services
- Financial Advisors
- Become a Client
- Media & Events
- Investing Spotlight
- Street Smarts
- Calculators
- Contact Us
Contact Us
Brennan Financial Services
14785 Preston Road, Suite 780
Dallas, TX 75254
Phone: 972-980-PLAN
Fax: 972-980-7859
info@brennanfinancialservices.com
Street Smarts
Dividends vs. Growth with Stock
Most people invest to potentially grow their money over time. With traditional investing in stocks and bonds, you can grow your funds either through the value of your asset going up, or through receiving dividends. Bonds typically provide income through periodic interest payments. Equities can provide shareholders with benefits from two perspectives: an increase in share price, or a dividend distribution. Many investors realize that they can make money two ways with stocks, and it’s important to consider which one is the primary goal.
Stocks provide ownership in a company, when you take on the risk of owning part of the company, you should benefit when the company does well. Traditionally, if a company made a profit, then they may share those profits with shareholders by distributing a dividend. For some large blue chip companies, the dividend was so regular that an entire retirement income portfolio was built on their stock. But times have changed, and many companies have reduced or eliminated their dividends, making it difficult for retirees to use stock as a reliable source of income.
One of the reasons for the change resulted from companies holding the profits for new projects to grow the company. Essentially, the companies reinvest profits in themselves and hope to make the business more valuable. In this approach, shareholders may be rewarded through an increase in stock price. Although they did not receive income from dividends, they have the opportunity to sell the stock for a gain.
The economics shifted again after changes were made to decrease the capital gain tax rate, and company dividends have not returned to the levels that once produced ample retirement income. So when you’re reviewing your portfolio, think about why you own what you own and whether you’re getting enough reward for your risk.
Disclosure:
Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. The declaration and payment of dividends is subject to the discretion of the Board of Directors and depends on various factors deemed relevant by the organization.