Dividend vs Growth

Difference Between Dividend vs Growth

The difference between Dividend vs Growth stock arises due to the decisions made by the management. When the company makes a profit it has two options, either return it to the investors in the form of dividend and the second is to invest it back in the company

The company who believe that they will generate higher returns by investing in the company compared to what they might have got in other investments do not pay dividends. There are also companies which have just started and have the scope of further expansion and opportunities. On the other hand, dividend-paying companies are mature and stable and believe that future growth is limited so they rather pay the investors and find better opportunities to invest

Because of these differences, both these types of companies attract different types of investors which have different investment objectives. Investors are differentiated based on the risk capabilities Risk seeking, Risk-neutral and Risk Averse. Risk-seeking investors opt for growth companies while risk-averse investors opt for a Dividend stock. Risk-neutral investors may have a portfolio which is a combination of both or portfolio comprising of only dividend stock or only growth stock

Head To Head Comparison Between Dividend vs Growth (Infographics)

Below is the top 9 difference between Dividend vs Growth

Key Differences Between Dividend vs Growth

Both Dividend vs Growth are popular choices in the market; let us discuss some of the major Difference Between Dividend vs Growth

• The classification if a company is dividend or growth is determined on the way it treats profits. Companies who invest the profit back in its operations or expansion are considered to be growth companies. Companies who on the other hand pay out dividends to its investors rather than investing in its operations are considered to be dividend-paying companies
• Dividend stocks offer stability and consistent cash flows while growth stocks give higher returns and meant for investors who are young and also for investors who do not need money immediately
• Risk-seeking investors usually opt for growth stocks as there is high volatility involved and is prone to market cycle on the other hand risk-averse investors opt for dividend-paying stocks as the risk involved with these stocks are limited
• Dividend-paying stocks are usually established business who can predict their cash flows and can also increase the share they return to investors from their profit. Growth stock companies are usually less established. They invest all the profits in the company and are still in the growing phase
• Investors investing in dividend stock usually fall under ‘Value Investing’ method while Investors who invest for capital appreciation fall under ‘Growth Investing’
• Dividend stocks provide both capital appreciation as well as the dividend. Growth stocks usually never pay a dividend and only have capital appreciation
• Dividends stock usually perform even in bear markets as they consistently pay dividends even if there is no capital appreciation. Growth stocks perform poorly in bear markets as the stock price tumbles down and investors also do not receive dividends
• Value investors look at stocks that have prices lower market price than the intrinsic value. Growth investors usually do not care about intrinsic value as long as the price of the stock keeps rising
• Dividend yield, the payout ratio is the ratios which dividend investors usually look at before investing. Growth investors look at PE ratios, EBITDA growth, PAT growth before investing, Both these ratios, however, look at the companies performance to peers
• Examples of high dividend paying companies in the Indian market are Vedanta, Infosys while growth companies are Eicher motors, Hindustan Unilever etc

Dividend vs Growth Comparison Table

Below is the 9 topmost comparison between Dividend vs Growth

Conclusion – Dividend vs Growth                        

Selecting the type of stock depends on the investment style, age group, goals, and income. A young investor can invest most of its money in high growth stocks because a young investor has a long career and has a long time to recover from market fluctuations. If the investor develops a good portfolio at the beginning of his career, it will have an exponential effect on the portfolio size when he is old. As the investor grows old he can transfer the growth portfolio to a stable dividend portfolio to reduce the blow in case of a market turmoil.

However, these are not the fixed mantra for investing. An investor may have a combination of both Dividend vs Growth stocks even when he is young or an investor at a very old age may have a portfolio comprising only of growth stocks.  This type of portfolio depends on the type of investor and his objectives and income.

Recommended Articles

This has a been a guide to the top difference between Dividend vs Growth. Here we also discuss the Dividend Stock vs Growth Stock key differences with infographics, and comparison table. You may also have a look at the following articles to learn more.

1. Top Differences of Finance and Economics
2. Options and Stock
3. Growth Stock vs Value Stock – Differences
4. Accounting vs Financial Management