Don't Even Think About Dividends Until You Read This!

Wooster Corthell |

Are you ready to unlock the full potential of your investments? In the world of finance, one of the most debated topics centers around whether to prioritize dividends or total return. Dividends, those regular payouts you receive from owning certain stocks, can be alluring. However, let's explore why it might be a more wise choice to shift your focus toward total return.

What is Total Return?

Total return encompasses all the ways an investment can generate profit, not just through dividends. It takes into account not only the income you receive from dividends but also the appreciation in the stock's value over time.

The Dividend Myth

Dividends are often seen as a reliable income stream. Companies that consistently pay dividends appear stable and financially healthy. However, there are some drawbacks to solely relying on dividends:

1. Limited Selection

Companies that pay high dividends may not offer the same growth potential as those reinvesting profits for expansion. By focusing solely on dividend-paying stocks, you may miss out on promising growth opportunities in other sectors.

2. Tax Implications

(In some states), dividends are taxed at a higher rate than capital gains. Depending on your tax situation, this could impact on your overall returns negatively.

3. Dividend Cuts

Companies can reduce or eliminate their dividends for various reasons, including financial difficulties or the need to reinvest in the business. Relying heavily on dividends can leave you vulnerable to such changes.

The Benefits of Total Return

Now, let's delve into why total return should be the primary focus of your investment strategy:

1. Compounded Growth

Total return considers both capital appreciation and reinvested dividends. Over time, this compounded growth can significantly boost your overall returns, potentially surpassing the income from dividends alone.

2. Diversification Opportunities

Prioritizing total return allows you to diversify your portfolio more effectively. You can invest in a broader range of assets, including growth stocks, which may not pay dividends but have strong potential for long-term gains.

3. Tax Efficiency

Capital gains are often taxed at a lower rate than dividends. By emphasizing total return, you may reduce your tax liability and keep more of your earnings.

4. Flexibility

Focusing on total return gives you the flexibility to adapt your investments to changing market conditions. You can take advantage of opportunities for growth, adjust your portfolio as needed, and remain agile in your investment strategy.

Striking the Right Balance

The pursuit of total return offers a more versatile and potentially lucrative approach to investing. By considering all forms of profit generation, including capital appreciation, you can optimize your investment strategy and work toward achieving your financial goals more effectively.

While total return should be your primary goal, this doesn't mean you should completely disregard dividend-paying stocks. The key is to strike the right balance that aligns with your long-term financial goals. Learn more about Dividends and how they can provide a stable income stream and an element of financial security.


Ready to shift your focus to total return and unlock the full potential of your investments? Connect with our advisory team to guide you on your journey to financial success. Join our community on LinkedIn to access valuable insights and connect with like-minded individuals who are committed to achieving financial success.