Retirement Strategy: Dividends Vs. Capital Gains

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Includes: AAPL, GE, JNJ, KO, MMM, O, PG, T, XOM
by: Regarded Solutions

Summary

Let's face it, there are far more folks looking for the big gains rather than slow and steady income.

There is absolutely nothing wrong with that strategy but it carries far more risk than many investors admit.

A dividend growth investing strategy is not fancy, can be really boring, but for a retirement portfolio it makes perfect sense to me.

I read tons of articles on Seeking Alpha just about every day. I am constantly amazed at the diversity of investor types that come to learn, pick up some helpful hints, and hopefully benefit from the experience.

Plus, the majority of the information is FREE. (Yes the Premium Service is an added value for those who want even more from authors they have come to respect)

For our world of investing, it simply does not get much better than Seeking Alpha. Of course there are some really boring authors who feel that dividend growth investing might be the way for regular dull folks like us, who want less risk and a low maintenance way to a more secure retirement.

The Growth Stock Crowd

Let me try to break this down so even the kids can understand where I am coming from, by relating this to buying real estate, or a house.

When folks choose real estate as investment, the sole goal is to eventually either sell the property for capital gains, OR turn it into an ongoing source of income by renting the property out. Most of the folks that build wealth through real estate these days are the ones who want to pay as little as possible, sell it for as much as possible, as quickly as possible.

Hey, it works! Those folks can become filthy rich if they hit it right. Unfortunately for most of us little guys, it is a very rough investment choice and most of us would fail miserably.

I equate the growth stock crowd to those real estate investors. Believe me that is not a knock, that is a compliment! You folks have to pick stocks at the right time, with a wonderful product that will grow sales and profits quickly so the share price increases for you to eventually sell the stock for an amazing profit, and THEN keep doing the same thing over and over.

To me, there are reasons that many of the greatest minds in this world win some and lose some, and the historical return as far as capital gains is around 8%. If everyone were to be perfect stock pickers and perfect market timers, over and over, there probably wouldn't even be an industry. To me it is unrealistic for everyone to always win. But that's just me.

The Dividend Income Crowd

I have my own perspective of these investors since I have become one, for quite some time now. I can tell you that I am absolutely no genius nor am I half as bright as so many of the amazing folks who contribute to Seeking Alpha by writing, and readers who comment and challenge everything for the benefit of so many others who come to read and learn but choose not to comment.

Far too often, myself included, contributors feel we are correct about everything, but in reflection, we really understand that what we are really doing is offering our own opinions in a format that becomes passionate. That being said, dividend growth investors are highly passionate about this approach because we are living proof that the approach, while modest, could work for everyone and anyone who is seeking a less risky, far simpler path to a more secure financial future.

Obviously, this strategy has risks and can fail, and is not for everyone. For myself, it is much easier to buy shares of the greatest companies on Earth, that pay me to simply own the shares. I myself select stocks that have a history of increasing dividends each and every year for decades. I am far less interested in the everyday share price, the background noise of the macro economic landscape, and any other metric to place on any stock other than its ability to continue to grow just enough to keep paying ME more income every year without fail, and that is what I focus on.

The Key Difference Between The Two Types Of Investors, From My Point Of View

The growth stock investor has to juggle not only the selections of the right stocks, but also if the current price is under or overvalued, the product pipeline is good enough to bring home the bacon, and when will it be the right time to sell and pocket the gains, then do it over, again and again.

The dividend growth investor needs to know that the companies they choose will keep paying us and giving us increases every year for as long as we live. It is not tough to find the current list of amazing companies that have increased dividends, many through both good and bad times for more than 25 years in a row, by simply looking at this website.

The growth stock investor will sell their stocks, or assets, to use the gains, the dividend growth investor will rarely sell those assets because the flow of income will drop. That income is what supports the potential for a more secure financial future and retirement.

The recent series of articles I have written was about my choices of stocks that fill my needs, and the stocks I chose can be purchased by any investor inclined to use this approach at whatever age you happen to be.

Once again, here is the list of stocks that I have selected:

AT&T (NYSE:T) Johnson & Johnson (NYSE:JNJ) Coca-Cola (NYSE:KO) Exxon Mobil (NYSE:XOM) Procter & Gamble (NYSE:PG) Realty Income (NYSE:O) Apple (NASDAQ:AAPL) General Electric (NYSE:GE) 3M Company (NYSE:MMM)

Not every dividend growth investor will agree with me, nor do I expect any investor to adopt this approach simply because I have chosen this strategy. That being said, anyone owning shares of the above stocks at any age and at any time, has a great chance to build wealth via dividend income over the very long term.

The choices are always yours to make.

Disclosure: The author is long AAPL, GE, JNJ, KO, MMM, O, PG, T, XOM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.