I recently watched a video by one of my favorite investing YouTubers, Financial Education. The video was titled something like “Why Dividend Stock Investors Fail” (I’ll post it below), and claimed that dividend stocks are low growth.
The argument came from looking at the S&P 500 (or similar ETFs like VOO) and then assuming that the average dividend stocks yeilds less than 2% annual return.
You can see for yourself here:
I’m not going to refute this video minute by minute, but I do have two things to say.
1. VOO Is Not A Dividend Stock
When you buy the S&P 500 (either as an index or ETF like VOO), you aren’t buying it for the dividend yeild. People buy this, because the S&P 500 historically returns about 7 – 9% per year.
And most of that return is in growth.
Buying a broad market fund like this is an easy way for shareholders to diversify safely, while still enjoying healthy growth. The 2% dividend is just icing on the cake.
This is why retirees and income investors generally put their money into bonds, REITs, or other high dividend assets. They want the cash flow, not the raw growth.
2. Many Dividend Stocks Are Growers
Secondly, just because something pays a dividend doesn’t mean it won’t increase in value.
Last year I bought two stocks: Hormel and Waste Management. Both pay a dividend and both are up over 10% in pure growth.
Here are screenshots from my Robinhood account:
(20% Gain)
(40% Gain)
That’s a huge gain, in addition to the dividend payouts.
Final Thoughts
I like the Financial Education channel and I think there’s some great information on it.
However, I did find the anti dividend argument very misleading.
Buying a dividend stock still leaves you with plenty of room for growth, and it also pays you just for holding it.
Because of this, dividend paying assets are a great investment giving you room for capital appreciation while still providing a safety net in terms of quarterly payouts.
P.S. Looking to enter the exciting world of dividend stocks? Why not sign up for the Robinhood App. It lets you trade commission free, and you’ll get a bonus stock when you join using any of the referral links on this site.
