Difference Between Dividend and Growth
In case of the dividend, the excess return that is earned on the stock is declared and shared with the investors and the excess of profits are withdrawn only as dividends whereas in the growth model, the excess return that is earned is re-invested and the profits are materialized only when the same are redeemed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 term growth and dividend are used in the mutual fund’s world where these are the two kinds of mutual funds currently available in the open market.
Dividends vs Growth Infographics
- Dividends stock is more prevalent in the market as the cash investmentCash InvestmentCash investment is the investment in short-term instruments or saving account generally for 90 days or less that usually carries a low rate of interest or the return with a comparatively low rate of risk compared to other forms of investment. is repaid in dividends by the stock or the mutual fund houses. Growth stocks, on the other hand, is where the money stays invested and is not withdrawn after periodic intervals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, whereas in the case of dividends, regular returns are given to investors at every interval
- Profits in growth investmentGrowth InvestmentGrowth Investing refers to capital allocation in potentially high earning companies such as small caps and startups, which grow much faster than the overall industry or mature companies. Because the returns on such investments are high, the risk that such investors face is also higher. can only be materialized when they are sold or redeemed, whereas, in dividend stocks, the excess profits can be withdrawn in the form of dividends
- Dividends stock is more closely related to companies with steady cash flows, and there is no major capital expenditureMajor Capital ExpenditureCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year. shortly. Growth stocks whereas have a possibility of growth as the future projections and significant capital expenditure of the companies will give them 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
|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 schemes of mutual funds if you can stay invested for 15 years or more.|
|Dividend stocks offer consistent cash flow, which is potentially less risky than growth stock because the investor is getting 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 excess return of the stock as the money are withdrawn in the form of dividends by the investor.||The excess profits get compounded and stay re-invested, which in return increases the value of the investment and is compounded every period.|
What Option to Choose?
Whether to opt for dividend or growth funds, it depends on the investor time horizon, the risk preference, and the kind of return that 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 kinds of investors who are looking for fixed and steady cash flow over the years.
In reality, no mutual fund or investment is perfect or always rewarding in nature. But investing should be a habit who wants to make their future secure and achieve some goals out of that investment, which can make a better future for them.
But as we all know that the return is fluctuating and depends on the market sentiments, the company’s investor relation, a company’s fundamental and other external factors. As per the data of S&P’s 500 index performance, dividend stocks tend to outperform the broader stock market and the growth stocks. Dividend stocks have the power to generate superior returns over growth stocks.
If an investor is planning for investing in short-term and less risk, he should invest in debt mutual funds. If an investor is looking for superior returns, short-terms and high-risk equity mutual investment are what he should opt for. Mutual fundsMutual FundsA mutual fund is an investment fund that investors professionally manage by pooling money from multiple investors to initiate investment in securities individually held to provide greater diversification, long term gains and lower level of risks. should be selected according to the goals and needs of the investor.
This has been a guide to Dividend vs Growth. Here we discuss the top difference between dividends and growth along with infographics and comparison table. You may also have a look at the following articles –