There is a difference between high yield dividend strategy and dividend growth strategy. Dividend growth is what makes the difference as the dividend on invested capital keeps increasing over a period.
for me dividend growth strategy makes a lot more sense as compared to chasing capital gains.
- Its real cash coming in and not just paper gains. Looking at just taxation is a myopic view IMHO.
- Its a great tool in financial freedom. One doesnt have to sell/redeem assets (i.e. stocks) to generate income. Why sell something which is growing in value?
- Proponents of 4% rule for retirement grossly underestimate inflation and how much corpus is needed. Dividend growing companies generally increase the rate of dividend at a faster clip than inflation
- One can do a combination of high yield low growth + mid yield and dividend growth to arrive at an optimum yield on cost strategy (ideally greater than inflation rate)
- Dividend growing companies may sound boring however they are cash flow rich, balance sheet strong and are a growing concern (otherwise why would they increase dividends :))
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