Gold vs. Dividend Stocks

Mar. 30, 2011 8:42 AM ETGLD, IAU, KMP, NNN, PM, PG, JNJ, SYY107 Comments
Dividend Growth Investor profile picture
Dividend Growth Investor

Investors typically make money when the assets they own increase in value and/or when the assets they own deliver dividend, interest or rental income. When combined, income and price returns result in the total returns equation.

One asset that has generated positive total returns every year since 2000 is gold. Investors who bet on the yellow metal have generated 17.70% annual returns over that period. Right now the precious metal is hitting all-time highs, as many investors expect that the amount of monetary stimulus by the Federal Reserve would create massive inflation in the US. This speculative frenzy is catching up quickly, as investors bid up gold through one of the many vehicles available to investors who wish to dabble in gold – gold ETFs, gold futures, physical gold etc. For example, one of the largest ETFs in the US with over 50 billion in assets is SPDR Gold Trust (GLD), which allows investors to easily gain exposure to gold.

In reality however, there are very few reasons to own gold, besides the expectation that it could hit some magical high point because the imaginary printing press of the Fed would create massive inflation. Gold is typically perceived as a store of value and as a sort of international currency.

When discussing gold investment returns however, it is obvious that years of great returns are followed by years of poor returns. For this reason, it is important not to draw conclusions based off a limited number of data sets. Investors who chase gold higher, touting its investment performance over the past decade, should not ignore the fact that investors who purchased gold 30 years ago would have made only a 75% return. An investment in Treasury Bills or Certificates of Deposit would have outperformed the yellow metal over the same time period.

This article was written by

Dividend Growth Investor profile picture
I have been focusing my attention particularly to companies that regularly increase dividends to their shareholders for over a decade. I have also written about about dividend growth stocks on Seeking Alpha and my website for over a decade. I am mostly a buyer of high quality dividend stocks, with solid competitive advantages. My holding period is forever - for as long as the dividend is at least maintained. I tend to concentrate my efforts on stocks which grow earnings and dividends, which provides outstanding total returns over time. I only focus my attention to stocks with sustainable dividend payments. I am also a firm believer in diversification accross sectors and geographic locations. I am a patient buy and hold investor, who believes that having an investment plan, investing regularly per your plan, staying the course, and keeping investment costs low are the best tools in the arsenal for the individual investor.I share my thoughts on investing in dividend paying stocks that have consistently increased their payments over time and tips on growing my dividend income. I hope that my blog will serve as an inspiration for my readers and that it would change their financial lives for the better.

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