Growth Stocks Paying Dividends: Is This A Bad Sign?

Times have changed. And probably for the better. 

Or maybe The Juice has just gotten older and wiser. 

Let’s consider some history to put perspective around the popular strategy of investing in dividend growth stocks. We do this ahead of tomorrow’s Juice where we’ll show you how to construct a killer portfolio of dividend stocks. So, if you want some ideas, check your inbox tomorrow and forward The Juice to a friend, enemy or family member. 

They can sign up for free. 

Rewind to the summer of 2012—

• After a roughly 17-year hiatus, Apple (AAPL) started paying a dividend again. 

And some people freaked out. 

This was before The Juice was born, but, if we’re being honest, at the time, we agreed with the type of sentiment some people spewed back then—

Endpoint – If you want dividends, you should have been building positions, over time, in dividend-paying blue chip stocks. AAPL is not a dividend-paying blue chip stock. It is an innovative hyper-growth machine in perpetual start-up mode that needs to stay that way or die.

I honestly think Apple executives view the situation in that regard. Why in the world should we pay a dividend? It’s not in our culture. It does nothing for everyday shareholders and it only makes the already rich (thanks to Apple) richer. As an AAPL bull, I hope Tim Cook and the Apple board does not give in.

Well, Tim Cook “gave in” and, as we speak—

• Apple is riding a 13-year dividend increase streak. 
• Apple currently pays a $1.00 annual dividend. 
• And a $10,000 investment in Apple 13 years ago, with dividends reinvested, is worth roughly $124,000 today. 

Remember that the growth in dividend growth stock refers to an annually increasing dividend payment not revenue. And that dividend reinvestment means each time you get paid a dividend, you use that cash to purchase more shares, ultimately amplifying your returns. 

Do this long enough and, well, that’s how you build wealth. 

Looking back, one of the best things Apple ever did was start paying a dividend again. Maybe it wasn’t in Steve Jobs’s DNA during his second stint as Apple CEO, but it was in Tim Cook’s. And Cook made the right call. 

• Soon enough, Apple will be a dividend aristocrat, meaning it will have increased its dividend every year for 25 consecutive years. 
• You can’t be a dividend-paying blue chip stock without having started as a growth stock that doesn’t pay a dividend. 
• At some point, you have to evolve and mature as a company, which can include paying a dividend. 
• With the measly interest rates that big banks pay on savings, the least large corporations flush with cash can do is return some of it directly to shareholders. 
• Because, over time, these dividends, whether reinvested or, eventually, taken as cash, can lead to investors living the dream. That is, living off of their investments, all or in part. 

As such, you heard no such furor when Meta Platforms (META) and Alphabet (GOOG) announced dividend payments. 

• META paid its first dividend in March. 
• META currently pays a $2.00 annual dividend. 
• GOOG paid its first dividend in June. 
• GOOG currently pays a $0.80 annual dividend.

Both companies have payout ratios of less than 10%. This simply refers to the percentage of earnings paid out as dividends to shareholders. Apple’s payout ratio is just about 14%. 

So relative to their cash piles, these companies are paying very little in dividends. 

• Apple cash: $61.8 billion 
• Meta cash: $58.08 billion 
• Alphabet cash: $100.72 billion 

There’s plenty of money left over to spend on research and development and growth and innovation. 

For shareholders, it might not seem like a lot, but these payouts will grow and amp up investment returns over time. 

• Today, 200 shares of Apple generates dividend income of $200. 
• Today, 200 shares of Meta generate dividend income of $400. 
• Today, 200 shares of Alphabet generate dividend income of $160. 

The Bottom Line: So, $760 a year in dividend income (all else equal) between these three mega stocks that are also up about 23.9%, 83.7% and 17.8%, respectively, over the last year. Not too shabby. We’ll take these dividends and this stock price appreciation alongside billions in cash to fund future growth any day of the week.

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