Ari Gutman: Getting Wealthy With Dividends Requires Growth

For decades, investors had an advantage with buy-and-hold investment strategies. That’s because the brokerage costs used to be far higher. Today, in many cases, they’re zero. Plus, short-term taxes used to have a far higher rate as well.

With taxes and fees heavily eating into returns, buy-and-hold worked since it meant reducing the costs of those activities. However, without that drag, investors looking for income can, and should, look to employ some growth strategies.

That’s because today’s dividends are still fairly low. The S&P 500 yields less than 2 percent right now. A $1 million portfolio with a 2 percent yield is earning about $20,000 per year.

Meanwhile, short-term bonds are paying closer to 5 percent. That same $1 million would make more than twice as much income without the short-term risks of stocks.

That’s why investors who are focused on dividends may want to look at higher-growth opportunities.

More growth means a bigger potential portfolio over time. And the bigger the portfolio, the bigger the potential cash from dividend payouts.

Some growth stocks even pay small dividends. While a low dividend may not be attractive now, a high rate of growth and a growing dividend can pay off better over time.

Either way, just investing for income isn’t ideal until an investor is already wealthy.

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