Dividend Stocks vs. Growth Stocks
Analyzing stocks from a technical standpoint can be a tedious and time-consuming task. Fortunately, you don’t have to do the heavy lifting on your own. All you need is a few charts and data points that you can easily find from any of your favorite price-tracking services.
There are hundreds of different types of stocks. The most common one is the common stock, which anyone can buy and sell. Common stocks pay annual dividends, which are a way for a company to return money to its shareholders. There are different types of common stocks and different ways for a company to pay out dividends.
What are Dividend Stocks?
Dividend stocks are stocks that pay regular cash dividends to shareholders. These stocks often have a higher yield than growth stocks but also a much higher risk of losing that dividend. They are often called “safe” because they tend to be a little more stable than growth stocks—and they are typically less volatile. Yet, they can be just as risky as growth stocks if you don’t know what you are doing.
Dividend Stocks offer you a share of the profits of a company. For example, if a company makes $100,000 in profit each year, you would receive $100 in dividends from that amount. This is why dividend stocks are a popular way to invest.
What are Growth stocks?
Growth stocks are simply high-growth companies that have demonstrated strong revenue growth and have raised their dividends to reward investors. Today, the stock market refers to growth stocks as “ dividend aristocrats ” due to their high dividend yields compared to the market’s lower-rated stocks.
Growth stocks are generally more volatile than dividend stocks, but you can turn that volatility into a huge advantage. The most popular growth stocks to invest in are things like Apple, Google, Facebook, and Netflix. These stocks will tend to be hot for a short period of time but will cool off quickly.
What is the difference between dividend stocks and growth stocks?
There are two types of stocks, growth stocks, and dividend-paying stocks. Growth stocks rely on continued growth in the company’s business. Dividend-paying stocks rely on their dividend payments to keep shareholders happy. Of course, the two are related: companies that pay dividends are meant to grow, just like companies that don’t pay dividends aren’t meant to grow.
Dividend stocks and growth stocks are two very different types of investments that are often confused as being the same thing. Dividend stocks focus on cash flow dividends and usually are protected from volatility by a company’s long-term economic health. On the other hand, growth stocks focus on earnings, the price of the company’s stock, and the overall growth of the company’s business.
Depending on the source, “dividend stocks” are a subset of stocks that pay out dividends. While they may sound like they are similar, they are, in fact, very different. The “growth” out of which dividend stocks are built is often dubious. Stocks that pay dividends are dependent on the performance of the company and its stock price. Therefore, they tend to be more volatile than growth stocks.
Growth and dividend stocks always seem to be hot topics. And that is because they play such a critical role in the performance of an investment portfolio. Both types of stocks are different, yet they are also similar: they are both high-growth companies that are expected to grow their earnings over time and pay investors a steady stream of dividends. Yet, there are differences between the two types of stocks.
Dividend Stocks vs. Growth Stocks
So, you’ve heard the saying that ‘growth stocks will beat dividend stocks. But what exactly is a ‘growth stock’? And why should you pick growth stocks over dividend stocks? Well, a ‘growth stock’ is something whose dividends are growing at a faster rate than the company’s underlying business. So, if a company is growing at 20% and pays a dividend of 10%, that would be a ‘growth stock.’
It’s no fun to be a passive investor. Either you’re selling shares and hoping for the best, or you’re buying shares and getting trapped in a position that may limit your upside. What you want is an investment that yields a steady stream of income but also one that has growth potential.