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Investing: Are you more compatible with growth or dividends?

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When it comes to investing you need to do what feels best for you. Are you more compatible with growth or dividends?

Not everyone likes the same things, not everyone needs the same things from their shares.

So, what appeals more to you? Growth or dividends?


If you’re a younger Aussie then you don’t need to go searching for dividends. You’re probably in a higher tax bracket so you don’t want to be handing over too much of your returns to the tax man unnecessarily.

Imagine if you were invested in Commonwealth Bank of Australia (ASX: CBA) shares and getting a 7.5% grossed-up dividend yield. You’d be handing over a third, more than 2.5%, of your cash returns from CBA to the ATO, with limited capital growth.

Instead, imagine if you invested in CSL Limited (ASX: CSL) shares. Let’s say the healthcare company paid a 1% dividend yield, meaning investors are only losing out on about 0.33% of the return. And it’s generating much stronger capital growth because it’s re-investing a lot of the profit back into the company for more growth.

We’re seeing plenty of businesses that are described as ‘growth’ shares deliver stronger long-term total returns because they have compelling business plans and they are re-investing for that growth. Shares like Altium Limited (ASX: ALU), Pro Medicus Limited (ASX: PME), REA Group Limited (ASX: REA) and Aristocrat Leisure Limited (ASX: ALL).

If that sounds good to you then growth could be the match for you.


I like to think of dividends as the more reliable option of the two strategies.

Share prices move about all over the place. Some share prices change by over 20% in just a matter of months, weeks or even days. Most dividends are paid out from a business’ fairly consistent profit, meaning that dividends can be consistent, even if the share price is volatile.

Maybe you’ve reached retirement and you don’t want to take on as much risk any more.

Shares like APA Group (ASX: APA), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Rural Funds Group (ASX: RFF) are known for defensive dividends.

Whilst shares like WAM Research Limited (ASX: WAX), Naos Emerging Opportunities Company Ltd (ASX: NCC), Future Generation Investment Company Ltd (ASX: FGX) and CBA are known for having dependable, large dividends.

If you’re in a low, or 0%, tax bracket then you don’t mind lots of dividends heading your way, particularly with the bonus of franking credits. It’s great because it means you don’t have to try to decide when is the best time to sell shares and you are much less at risk of sequence risk in retirement if you choose the right dividend shares.

Foolish takeaway

I think you can run a portfolio combining both strategies with some dividend shares and some growth shares. I’m not focusing on high-yield shares, I want shares that display good compound growth.

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Tristan Harrison owns shares of Altium, FUTURE GEN FPO, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd., RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Brickworks and REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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