Investors who buy stocks typically do so for one of two reasons: They believe that the price will rise and allow them to sell the stock at a profit, or they intend to collect the dividends paid on the stock as investment income.
Of course, some stocks can satisfy both objectives, at least to some extent, but most stocks can be classified into one of three categories: growth, income or value. Those who understand the characteristics of each type of stock can use this knowledge to grow their money in a way that fits them. What do I mean by that?
Some investors need to see results immediately and steadily in order to feel like they have the right strategy. They want to beat the S & P every day, every week, every month, and every year. Other investors choose a strategy based on things like logic, inevitability, math, metrics, and careful analysis of individual companies.
Who’s smarter? Answer: it depends. “Immediate and steady” translates to the growth and momentum mentality. “Income and value” investors see the big picture, long term. Long term thinkers are not worried if they come in second today. They’re not sprinters. They believe they will win the marathon with smart planning.
That said, one category of stock (growth, income, value) isn’t “better” than another. The most important thing is to choose a strategy that fits you, and let the strategy determine your stock selections. That always works better than choosing a couple of stocks and hoping it fits into a cohesive, written strategy.
Your selections should be based on several specifics, such as where we are in the growth cycle, where you are in your LIFE cycle, and where the STOCK is in terms of price.
Are you seeking short term growth and gratification? If so you will want a portfolio built around the right technology selections. Are you seeking income in the form of dividends, and do you understand the value of re-investing divdidends? If so, you will want to choose dividend paying stocks and ETFs, but you must choose wisely. High dividends sometimes are a sign of a desperate company that has seen better days and is trying to attract capital. Do you want to pay a fair price for a profitable company? If so, you are a value investor.
Can you be all three—growth, income, value? Yes, of course. You can and should allocate your money to match your risk tolerance and time horizon. Let’s do a summary and review. First let’s look at value and INCOME stocks. A value stock is one that you buy at a price you determine to be fair, based on the company’s profit capabilities, track record, and staying power. “Income” in the world of stocks means dividends. There is an old market phrase that goes like this: “dividends don’t lie.” This refers to the fact that no matter what else is going on in the market or the economy, if you own a stock that keeps paying you a cash dividend and keeps raising that dividend every year, you own a valuable company that pays you to be an owner.
With a quality dividend portfolio, you may not beat the growth and momentum investor in the short run, but if you reinvest your dividends over time, mathematics and history are on your side. Reinvesting rising dividends over long periods of time is a strategy that has shown very strong results, beating the performance of the S & P over 30 year periods (Source: Ned Davis Research)
The term “value” implies that the stock has been issued by a company that actually makes money, in an industry that is in growth mode, and the price you are paying to own the rights to the future profits of the company…. is fair.
Warren Buffett always said he would rather by a “great company at a fair price, than a fair company at a great price.” He looked for staying power. He liked what he called “virtual monopolies.” Staying power really matters the later you get in a stock market cycle… like we are in now.
You want to find sector and industry leaders where the underlying earnings of the company are not stagnating and the earnings in relation to the current price AND/OR the dividend yield are within your written guidelines for making purchases. The IQ Wealth Black Diamond Dividend Portfolio has strict written guidelines for stock selection. We like great companies at fair prices that pay exceptional dividends and raise those dividends every single year.
Now let’s look at Growth Stocks. Growth companies typically don’t pay dividends. Ideally, they are growing at a faster rate than the overall markets, and devote most of their current revenue toward further expansion.
Every sector of the market has growth companies, but they are most prevalent in technology, aerospace, and software. The IQ Wealth Blue Diamond Dividend Growth Portfolio is focused on these future technologies plus dividends.
The Black Diamond is focused on income and value. Which is better? That’s like asking which quarter horse on a ranch is better. If both are getting the job done, the point is moot. One may run faster in short distances, which can come in handy. The other may have more endurance.
This is why we have many clients who own both the Black Diamond and Blue Diamond investment strategies. We believe that almost all serious investors can fill their needs by owning one or both of our dynamic dividend portfolios. With management fees of less than one percent and no commissions, our professional managed portfolios may check all of the boxes you are looking for. For more information, visit BlackDiamondDividend.com.
Steve Jurich is an Accredited Investment Fiduciary®, professional money manager and host of the daily radio show MASTERING MONEY on Money Radio in Phoenix, AM1510 and 105.3 FM