With the sharp market downturn in the last five months, the S & P 500 has suffered a 23% loss year-to-date, and there is no doubt that many investors are questioning the integrity of their portfolio. If you’re considering making changes to your investment, or if you happen to be a bystander with a bucket of cash (good for you), what to do next, and how to make the hard-earned money Will ask if it is best to use it. ..
All the answers to these questions are summarized in the investment strategy. Some prefer the comfort of dividends, while others opt for higher-risk, defeated tech stocks that boast huge growth potential and are currently trading at bargain prices. Which route is the better purchase for you?
For dividend aristocrats
Dividend aristocrats are characterized by increasing their annual dividends for the 25th consecutive year. These companies also belong to the S & P 500, an index that generated an average annual revenue of 10.7% dating back to 1957. Therefore, focusing on this group could generate a significant level of capital increase, along with the comfort of an annual dividend. It may increase over time. As dividend payments increase, investors who choose to reinvest their dividends can benefit from additional combined returns.
But how much passive income can dividends actually generate? One easy way to find out how much you can receive with an annual dividend is to view the company’s dividend yield. For every $ 100 invested in a company’s stock, the annual dividend is equal to the yield.
The table below shows a sample of dividend aristocratic stocks (IBM (IBM 2.62%), ExxonMobil (XOM 1.98%), General Dynamics (GD 2.65%), and Walgreens Boots Alliance (WBA 1.86%)). It represents different sectors.
Company Stock Price Annual Dividend Yield $ 100 Annual Dividend with Investment $ 10,000 Annual Dividend with Investment IBM $ 135 $ 6.60 4.85% $ 4.89 $ 489 Exxon $ 86 $ 3.52 4.09% $ 4.09 $ 409 General Dynamics $ 210 $ 5.04 2.40% $ 2.40 $ 240 Walgreens $ 39 $ 1.91 4.86% $ 4.90
During times of market volatility and downward pressure, the annual returns of various sectors may be better than others. For example, according to a study conducted at George Mason University, energy and materials stocks outperform other sectors during periods of high inflation and high interest rates, offering 18% and 16% annual returns, respectively. This can impact strategies on how to invest in dividend stocks.
Knowledgeable investors who rely on their portfolio management skills can choose to adjust to market trends to optimize capital appreciation and dividends. However, for many long-term investors who are satisfied with the average annual rate of return from the S & P 500 of 10.7%, it is a good idea to choose the dividend aristocrat with the highest annual dividend and the longest continuous annual increase. maybe.
In the case of beaten technique
If you look at the current list of dividend aristocrats, you may find that one sector of technology seems to be barely represented. In fact, only two of the 65 companies listed (automated data processing and IBM) are involved in technology. But this is not so surprising. Because such companies often choose to invest money in themselves for future innovation and growth.
The technology sector as a whole has declined 12.7% over the past year and has declined 28% to date. Companies such as Apple (AAPL 2.45%) and Amazon (AMZN 3.58%) are down 25% and 42%, respectively. Last year, they were arguably the top dogs in the tech field, but neither offered much in terms of dividends. Apple’s current annual dividend is only $ 0.92 per share, but Amazon hasn’t paid any dividends.
Of course, there are pros and cons to abandoning dividends altogether or producing only minimal dividends. On the one hand, non-participating and low-dividend companies need to reinvest in innovation and future growth. Dividends, on the other hand, can keep investors interested and keep stock prices down relatively to a minimum. Without giving investors a dividend incentive, a company’s stock price could be exposed to even more significant declines.
But what excites investors with these blown tech stocks is the potential for tremendous growth in earnings and earnings, which can lead to huge capital increases through rising stock prices. The average annual rate of return for the S & P 500 information technology sector over a 10-year period is 16.9%, which is higher than the average annual rate of return of 14% for the broader index over the same period and far higher than the S & P 500’s lifetime average of 10.7%.
But if you look at top tech companies like Apple and Amazon, stock growth over the same decade is staggering 487% and 881%, respectively. That level of return, with the risk of a significant decline along the way (as is clear from last year), can certainly make up for the lack of dividends.
The last 25% drop in Apple and Amazon stock prices was in 2018. Since then, both have risen for three years, bringing more than 100% rise before the current bear market. And since 1950, the S & P 500 has recovered at an average annual growth rate of 24% after entering the territory of the current bear market.
Which one is right for you?
Determining which is the better purchase depends on your investment strategy. All tech stocks beaten with dividend aristocrats can provide returns that help investors reach their goals. If you hate risk more, or at some point in your life where it’s important to generate income, it’s probably better to go with a dividend aristocrat for your needs. But if they are willing to take the risk of volatility against the potential rewards of growth generated by innovation advances, the defeated tech sector can increase profits in the long run. We can offer low price opportunities. Some investors may choose a combination of both.
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