Dividend vs Growth

Publication Date :

06 Dec, 2018

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Table Of Contents

Difference Between Dividend and Growth

In the case of the dividend, the excess return earned on the stock is declared and shared with the investors. The excess profits are withdrawn only as dividends, whereas in the growth model, the excess return earned is re-invested, and the profits are materialized only when the same are redeemed or sold.

There are two types of investment sets – Growth and Dividend. Both types of investments have their advantages and disadvantages. The investment type depends on the investment horizon and circumstances and the objective of the investment for which the investment has been made.

Generally, the terms growth and dividend are used in the mutual fund world, where these are the two kinds of mutual funds currently available in the open market.

Difference Between Dividend and Growth

Dividends vs Growth Infographics

Key Difference

Dividend stock is more prevalent in the market as the cash investment is repaid in dividends by the stock or the mutual fund houses. On the other hand, growth stocks are where the money stays invested and is not withdrawn after periodic intervals.
In growth, the excess return generated on the stock is re-invested in the stock itself. In contrast, in the case of dividends, regular returns are given to investors at every interval.
Profits in growth investment can only be materialized when sold or redeemed, whereas, in dividend stocks, the excess profits can be withdrawn in the form of dividends.
Dividend stock is more closely related to companies with steady cash flows, and there is no major capital expenditure. Growth stocks have a possibility of growth as the companies' future projections and significant capital expenditure will give them a return over a longer period.
If the investor is looking for liquidity and cash at periodic intervals, he should opt for dividend investing. If, on the contrary, an investor is looking for growth and wants to stay invested for a long time, he should opt for growth mutual fund stocks to reap the benefits.

Dividend vs Growth Comparative Table

Dividend	Growth
Shorter time horizon as cash inflow is regular.	Longer time horizon as cash flow is only at the end of a period.
Cash inflow from the stock at periodic intervals	Cash inflow at redemption or sale only.
A release of excess return	Re-investment of excess return
The money received is tax-free at the hands of a unitholder.	The money is only tax-free in some mutual funds schemes if you can stay invested for 15 years or more.
Dividend stocks offer consistent cash flow, potentially less risky than growth stocks because the investor gets money at regular intervals.	Growth stocks have the potential for higher returns for investors. Growth stocks are compatible with those investors who are not looking for instant cash flow and are looking to stay invested for a longer time.
They generally outperform growth stocks.	They generally underperform than dividend stocks.
The investor losses on the compounding of the stock's excess return as the money are withdrawn in the form of dividends by the investor.	The excess profits get compounded and stay re-invested, which increases the value of the investment and is compounded every period.

What Option to Choose?

Whether to opt for dividend or growth funds depends on the investor's time horizon, the risk preference, and the kind of return he is looking for. Investors looking to create wealth for a longer-term horizon should invest their proceeds in growth to stay invested and enjoy more extended returns. Undergrowth investment, you will not receive any immediate return or any payment in kind of interest. Still, your investment will multiply over the years, whereas, on the other hand, dividend investment is for those investors looking for fixed and steady cash flow over the years.

Conclusion

In reality, no mutual fund or investment is perfect or always rewarding. But investing should be a habit that wants to secure their future and achieve some goals out of that investment, which can make a better future for them.

Dividend stocks have the power to generate superior returns over growth stocks. As per S&P 500 index performance data, dividend stocks tend to outperform the broader stock market and the growth stocks.

But as we all know, the return fluctuates and depends on the market sentiments, the company's investor relations, the company fundamentals, and other external factors.

Mutual funds should be selected according to the goals and needs of the investor. If an investor is looking for superior returns, short-term and high-risk equity mutual investments are what he should opt for. If an investor is planning to invest in short-term and less risk, he should invest in debt mutual funds.