December 26, 2017

All I Want For Christmas Are A Few Good REITs


Dividend paying stocks provide their shareholders with two return components: growth in capital and income. Many investors do not see it this way, as they tend to think of the dividend providing them their total return.

However, the stock market capitalizes earnings whether a company pays earnings based on their past and future prospects for growth, regardless of whether a dividend is paid or not.

The first component is the capital appreciation component (growth) or the increase (or decrease) in the stock’s value over time. The second component is the dividend, or lack thereof, that the company pays to shareholders in cash, typically once a quarter. The two added together equal the shareholders’ total return.

On the one side, we have the capital growth component and on the other side the income component.

However, one important thing to remember is that when comparing two companies with equivalent rates of earnings—one paying a dividend and the other not paying—the dividend paying company will pay its shareholder a higher total return. The stock that pays a dividend to its shareholders is providing them a return bonus or kicker.


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