high vs low vs no yielders - Stocktrades Canada

Hi,

Read with great interest todays email to members on investing in high vs low yielders, concluding that low yielders are not necessarily inferior in terms of total returns.
I assume that is true also for no-yielders at all right? one should not avoid companies that give no dividends (so called growth? is that a synonym?).

Further, as one not needing the dividend for income at this stage in life, I tend to view dividend per se as a NEGATIVe, because not only I’s rather they do something better with the money for internal growth, but also in non registered/taxable account, I would not pay a tax on a dividend now, rather than keeping it in the stock to grow, and defer the tax, preferably until retirement. That point was not mentioned, but isnt it correct?

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Asked on October 23, 2022 10:27 pm

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Hi there,

Yes, this certainly applies to no-yielders as well. That said, just because one doesn't pay a dividend does not mean it is automatically a growth stock. Accepted definition of a growth stock is annual growth (Rev & earnings) of 10%+ and many companies that don't have a dividend don't technically qualify as a growth stock.

Even if you don't need a dividend at this stage of your life, it doesn't mean it is a negative. As we pointed out, there are several strong stocks that deliver strong total returns and pay a dividend. You'll also see dividend payers hold up better in times of uncertainty vs non-dividend payers. In terms of taxation - dividend or not, if held in a TFSA or RRSP then there really is no difference in terms of dividends vs capital gains. That said and as you pointed out, if held in a non-registered account, capital gains are more tax efficient than dividend income. So from that perspective, you are correct. It really does depend if you hold in a non-registered or registered account.

Honestly, at the end of the day - you buy the stock that you feel will deliver the best returns over the course of your holding period (dividend or no dividend). In other words, I wouldn't pass on a stock simply because it pays a dividend if it has a stronger investment thesis than a non-paying one.

Mat

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Posted by Mathieu Litalien

Answered on October 24, 2022 5:47 am

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