The Dividend Growth Strategy: Should Young People Even Bother Doing It?
The following post is about the Dividend Growth Strategy: Should young people do it? Or should they just go for index and growth stocks (riskier stocks) and then switch to dividend growth stocks when they get older?
I posted the question on a DGI board:
My thoughts about AT&T for young investors with lots of time?
Future returns are probably around 4% to 6% dividend return and 2% EPS growth. A solid investment for older investors but one could argue that young investors should neglect AT&T and find stocks with better growth (Medtronic, for example). What do you think?
Here are some answers I received
- Well if someone is looking for growth stock then yes T is a sucker. I had 29 shares of T back in 9/2015. With DRIPs, I get to 32.05 shares right now with 12% growth. Not that much but the opportunity is there to make some money.
- Just make sure, if young, not to only have a portfolio with stocks like T. Own some faster-growing stock like an Adobe, Nvidia, maybe a Facebook or Amazon as well since you don’t only need income if you have time on your side
- For young investors with lots of time, T is a mistake. They should be focused on growth stocks, which will return many times over what T will return 20 years or more in the future.
- For any young investor with a ton of time, don’t even bother with dividend stocks and go with high-risk, high reward growth stocks.
- I would put some money in T. I don’t think you should put everything in risky stocks
- The dividend growth rate for T is too low to really appreciate the compound interest, I think. I would focus on stocks with higher dividend growth rate and a relatively high initial dividend yield.
Wow. I’m always astonished by the answers from this group:
Young people should focus on growth stocks (I understand it as NOT DG stocks, but growth stocks) with lot’s of risk, probably lose a ton of money, but most importantly, neglect their edge towards other investors, namely time.
Then, when you’re older, you should switch from growth to DGI stocks because somehow that’s way smarter now (now that you have lost maybe 10-20 years of compounding). Remember, I’m not talking about dividend stocks, but dividend growth stocks.
Don’t you find it insanely strange that you suggest to a young person to neglect that he has lot’s of time = lot’s of compounding, but rather that he should try the classic game of finding the winner of tomorrow? Sometimes, I’m getting the sense that only a few people in this group believe (understand P*(1+i)^n) in compounding and dividend GROWTH investing.
Btw, sure we can talk growth and other stuff for portfolio management, but this group is based upon the DGI strategy, so that’s what I expect the theme to be about.
Some argue using past performance of T. Let’s avoid that since we don’t know the picture and the market is even more saturated now than before. T-mobile and Verizon is also strong, and Netflix provides a threat.
The question we young investors should ask is if T is a great place to add our money to or if we should choose to invest in companies such as HRL or MDT. I just compared T and MDT, and given that the variables stay the same, MDT is a clear winner. (Fully aware that CAGR is about 10% for 30 years is stretching it, but so is thinking that AT&T will be able to grow 2% in the foreseeable future.) Does that mean young investors should avoid T? Own both?
Owning both seems a bit strange since you now “know” that MDT will significantly outperform T. There’s also the argument that you don’t pay taxes on growth, but you do on dividend income. However, one could argue that owning T is the same as owning a bond, or maybe a proxy-bond such as Reits.
Adding Nvidia and those non-dividend paying companies is another discussion and it’s way too complex to compare.
I do think we young investors should be aware that most of the people we chat/talk with are 10 to 20, even 30 years older and therefore might need stocks as T and not stocks as HRL. It’s just a totally different perspective about time.
If young investors with time shouldn’t follow the DGI strategy, why should older people do it?
Some people start to talk about growth or index, that’s fine, but then that’s another strategy. I do save in indexes, but my main strategy is in DGI. So, please tell me, what do you think? What’s the whole point about the DGI strategy if so few really believe in it? I know that I have many readers who aren’t retired. What do you think?