Dividend Vs. Non-Dividend Stocks

No advice on individual stocks here, just the basics of why you would/should choose certain types of investments.

Dividend Stocks

Has a steady income from your investment, even if the stock is down. This is great for retirees and people looking to use their investments to fund their lifestyle. 

Dividend stocks are usually more stable companies that will keep your portfolio from making large movements.  While not seeing a large drop-off in your investments is great, you wont see the big gains as much either.

You are earning money in two ways when a stock pays dividends.

A large dividend could mean the company is doing great and has a surplus of cash on hand, but, it could also imply the company is solid now, but, lacks a plan for the future.  The company might not know what to do with their profits and just pays them out. You could be looking at an opportunity loss, for example, a company paid its shareholders instead of purchasing an up and coming smaller company to bolster its business.

Non-Dividend Stocks

These are often newer companies pouring all their earnings back into growth.

An investor would hope to see greater upward stock price movement from these companies as they are in a growth stage, or because they are focusing on the business and not on payouts to shareholders.

Instead of a dividend, a company may choose to buy back stock. This would increase the Earning Per Share for investors.

So which is better?

Well, you are not going to be able to find a real comparison of the two types of stocks. There are just too many variables other than dividends to try and stack the two up against each other.  What is interesting, you can see the difference in earnings over the years of reinvesting your dividends as opposed to cashing them out. If you invested 10,000 in the S&P in 1960, you would have about 640,000 dollars today, but if you reinvested the dividends, you would have just over 4 million. So which is better will depend on your own needs and research.

Check out the link below for a pretty exhaustive look at dividends.

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