Business & Investment

Why invest in dividend stocks instead of growth stocks today

Buying dividend stocks instead of growth stocks may sound like a strange idea to many investors. After all, dividend stocks have historically been viewed as a protection for income investors, rather than individuals seeking growth within their portfolio.

However, after the recent recovery of the stock market, many growth stocks have been traded with high valuation, so I think dividend stocks are better. Value of money.. It can also grow in popularity as a result of the lack of income investment opportunities available elsewhere.Result is High total return In the next few years.

Value Opportunity Between Dividend Shares

Although the valuation of many stocks has risen due to the stock market rebound, it is possible to obtain a relatively high level of passive income from dividend stocks. In fact, about one-fifth of the FTSE 100 members currently offer yields in excess of 4%. This suggests that there may be many large-capitalization companies with excellent cost performance. This does not guarantee a future rise in stock prices, but may suggest that there is plenty of room for capital appreciation.

In contrast, many companies with impressive earnings growth forecasts have seen a sharp rise in value due to the recent recovery in the stock market. Investors seem to be paying more and more attention to businesses that are expected to see a surge in profits. As a result, in some cases, it gets a high rating. This may limit the likelihood that growth stocks will lead to further stock price increases, as investors may already be “price” on the outlook.

Increasing attractiveness of dividend stocks

Dividend stocks can become more and more attractive in the coming years. Interest rates are notoriously difficult to predict, but it seems relatively likely that the 4% -5% interest rate days are not set to return for a long period of time. This may mean that some passive income investors are switching from other earnings-generating assets such as cash and bonds to dividend stocks for a relatively high return outlook.

This high demand for dividend stocks may mean providing a greater return outlook than the wider stock market. Responding to rising equity markets can generate single-digit higher total returns on an annual basis, similar to the historical returns of indexes such as the FTSE100 and FTSE250 over the last few decades.

Obviously, there is no guarantee of future returns from the stock. The stock market may not match previous capital growth rates, but dividend stocks can also struggle to provide high total returns. However, low valuations and potentially high popularity mean that they are likely to generate higher returns than the market in the long run.

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The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by considering different insights, Better investors than us.

Why invest in dividend stocks instead of growth stocks today Why invest in dividend stocks instead of growth stocks today

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