“The Alpha Difference”- Value vs. Growth

“Dividend Payers”:  Sounds Great, but That Dog hasn’t Hunted in a Long While!

Frequently, we meet with prospective clients who are reluctant to make a move because they have bought into this sales pitch from their advisor that the stocks they have them invested in are “good quality high dividend payers”. Inside our heads we want to tell them, “Oh so you prefer underperformance?!”  For the record, we are fans of companies returning profits to shareholders via dividends, but in this low interest rate environment, more forward-thinking companies have alternatively used that cash to buy back their stock and/or invest in growth.  This subtle difference has resulted in a chasm in outperformance in recent years as demonstrated by the attached line graph below.  The ticker SDY in magenta represents Large US Companies who pay above average dividends while ticker IWF in Greens represent Large US Growth Companies.  For comparison purposes, we have included IVV (blue) as a proxy for the S&P 500.  Over the past five years those “good quality high dividend payers” have cost you about 50% of the return of just being in the index!  In comparison to Growth Companies, the difference is exponential and sadly for some is likely the difference of being able to retire on time or having to work 5+ more of your Golden Years.  At Alpha we believe investors should focus on “total return”, which includes appreciation AND dividends.  Unfortunately, by not including adequate growth stocks in portfolios to barbell their dividend paying stocks, many financial advisors and portfolio managers have grossly underperformed the broad market and have undermined their client’s retirement goals.  Maybe value investing will come back into favor one day, but our guess is it will likely be after interest rates get back to a more normalized ranges versus historical averages.  In the meantime, best to play at least “middle of the road” between growth and value or risk grossly missing the mark and forcing a delayed retirement. Want to learn more about the Alpha Difference? Call today to schedule a no obligation, confidential conversation to make sure your retirement isn’t unnecessarily delayed by the Dividend Trap!