Should You Focus on Dividend Stocks or Growth Stocks?

When you decide which stock(s) to invest in, there are many different factors to consider. One of the most important is whether you want to buy a growth stock, or a dividend stock. There are some growth stocks that pay modest dividends, but normally that isn’t the case.

While dividend stocks might offer you great prospects for recurring income and cash flow, they’re likely not going to offer you the same returns that a good growth stock will. However, if you are investing for the short term or need some regular cash flow for retirement, then dividend stocks would be your best bet.

If you’re not risk averse and are okay with seeing some fluctuations along the way, then a growth stock would likely be your best option. Top-performing tech stocks like Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG) don’t pay a dividend, and investors shouldn’t expect one anytime soon.

After all, the companies are too busy re-investing their profits into their businesses and that helps to drive more growth and innovation. If they had to worry about paying a dividend, then we’d definitely see much less growth from the stocks.

Paying a dividend can be a very political decision, because companies often don’t want to stop a dividend or reduce it since there are negative connotations that go along with those actions, like that the company is struggling. Instead, in many cases its better to simply avoid paying one at all if there’s a chance it’ll cause issues.

Ultimately, growth stocks are appropriate for investors that have a long investing window and are not risk averse, while dividend stocks are more suitable for those investors looking for a recurring source of cash.