Dividend Income or Growth?

A long time ago I was introduced to an investment strategy that has stood the test of time in Canada. It is investing for income, in particular dividend income. If the dividend increases over time then so will the income paid to me.

So often investors find themselves chasing growth funds when they really want consistency and stability and sometimes regular income. This is the case with dividend funds.

A dividend fund is a portfolio of companies or securities that pay dividends, or profits from companies to shareholders like you and I. You see, most dividend funds are more or less stock funds that are not designed for retirement income.

Some dividend funds have marginal dividend payouts but boast big returns. The question I ask you is do you want growth or income? Do you want high returns or a steady stream of cash flow and stability?

Planning your retirement income can be confusing when you are reviewing your options. Dividend funds can hold a combination of stocks, bonds, preferred shares, income trusts and income related securities.

Even fund names can be confusing. Some are dividend income funds yet the income is marginal. Finding the top performing dividend fund does not mean you are going to receive monthly income either.

If your goal is to look for tax efficient dividend income, then sort through the category of dividend fund carefully and look at the types of holdings, not the past performance.

I assure you, you will always find a top performing dividend growth fund over a dividend income fund.

But if stability of your money and cash flow is important to your retirement income plan, then ignore the high retuning growth funds and look to consistent dividend income performing funds or portfolios.

It is always safer to know what you own than to rely on the fund manager. He or she will never sit down with you to find out your goals, and to see if you need income or growth.

A recent survey in April 2006 shows over 160 different dividend funds. Check the prospectus and annual report or ask your financial professional the details of income or growth when it comes to dividend funds.

Written by Grant Hicks

Grant Hicks, C.I.M., FCSI is a professional speaker, co-author and a Retirement Planning Specialist with Manulife Securities and Hicks Financial. A leader in the financial industry, Grant has been helping Vancouver Island residents plan and create their retirement lifestyles since 1989.

Leave a reply