Dividends4Life: The Hidden Risk Of High Dividend Growth Stocks

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The Hidden Risk Of High Dividend Growth Stocks

Posted by D4L | Saturday, March 14, 2015 | | 0 comments »

High current dividend yield provides a larger total current income payout for each dollar invested. On the other hand, stocks with high dividend growth usually have a lower dividend yield, but it is assumed that the dividend will grow quicker. Which method is more likely to produce the largest income stream when looking 10 or 20 years in the future? A large yield that grows slowly or a small yield that grows fast?

One of the key assumptions is that higher trailing dividend growth will persist. Most investors will readily admit that the high income growth rate will not continue at the same rate permanently and will slow over time. Nevertheless, many believe that high trailing dividend growth will translate into long-term income building which will provide greater annual income than following a 'high initial yield' portfolio.

Source: Seeking Alpha

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