I believe that, for those investors (mostly working or salaried people) who do not need or do not depend on Dividend income for their regular expenses, it might be good to focus on Growth stocks which invest the profits back in the business and distribute less dividends.Dividends are not tax efficient as of today.
Dividend re-investment in the same stock has its pros and cons:
Pros:
(1) You will keep buying the stock using post tax dividend income, thus increasing no. of shares in the long term. This is useful if you want to hold that stock for more than 8-10 years.
(2) You may not have to track where the dividends are getting consumed since you will re-invest it.
Cons:
(1) You may end up averaging up, since you might buy more shares at higher prices. If your investment in that stock is only for 3-5 years, this may not be good.
So, it may vary from an investor to investor whether dividend should be re-invested or used for some other recurring goals like yearly vacations, insurance premiums, buying gadgets.
For those which are partially retired, Dividends certainly give additional income for regular expenses or can be used for recurring goals.
| Subscribe To Our Free Newsletter |
