There’s a simple choice. Or so they say.
Conventional wisdom says that one can either go for growth or go for income, that they are incompatible when investing.
On a basic level, faster growing companies are generally newer and smaller, and usually issue little or no dividends. Older more established companies which are generous with dividends are generally larger and grow more modestly.
As proof of this concept, a company growing from $1 million in sales to $2 million is a lot easier than from $1 billion to $2 billion. While both are doubled in size, the absolute difference is enormous.
So What To Do
If one is seeking both income and growth, the path to take is to diversify. Even 50% in each category can be appropriate. While I have a mix of some growth and some income companies, I weight my holdings towards income. That is my choice, and intelligent minds may disagree. What works best for you?
What Can Be Done
If one’s goal is to buy stocks with the purpose of selling them later for a profit, then a large amount of growth companies could be the ticket, as growth companies are prone to grow. There is no guarantee, but stock prices of growth companies are more volatile, and as such when caught on the upswing can produce profitability.
On the other hand, large dividend-issuing companies are often slower growing, are generally not as volatile, so quick profits are not likely. Over time, dividends from these kinds of companies, often called value companies, can accumulate to provide a solid income. That is why I prefer dividend reinvestment.
The most important factor is dividend investing is “time.” Since our time is limited, the earlier one starts, the more time we have to grow our dividend income.
How have you chosen between growth and income? Let me know here.
The woodblock print is from the woodblock collection of the Plantin-Moretus Museum, Antwerp, Belgium. Date not available.
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