Did you know that the higher dividend yielding stock might generate less income? This is because, quite often, or even most of the time, a higher yielding stock is also the slower growing one. Companies that pay a dividend pay a percentage of earnings out to shareholders called a payout ratio. Slower growers tend to pay out a higher percentage than faster growers.
Growth yield is a phrase I have coined to describe the velocity or rate of change a dividend grows at. Faster growing companies that pay dividends also have faster growing dividend income streams. This can lead to more income long term, even if the starting yield is less.
Today’s video looks at the history of two well-known stocks that illustrate this point.
Best when viewed in full youtube screen.
Disclosure: Author Manages Portfolios Long MCD
Going for the highest yield is not always the best option. A lot depends on current needs. If you are looking for future income, then it’s possible that less is more.