Mailbox Money Math Of Dividends

Growth or income? There are more than enough Tortoise and Hare investment products to choose from, and even more investment analogies drawn from this great race. A more uncrowded question is what animal do you think runs the fastest for the longest?

It’s you and me!

“All animals are equal, but some animals are more equal than others.”
– George Orwell

Humans’ secret weapon is sweat. We have a couple million more sweat glands than other animals. Not having much fur helps, also. Plus, our IT bands hold elastic energy unlike any other animal. Those bouncy tendons in our legs propel us, reducing the amount of energy to take the next big step forward.

Hairless, clawless, and largely weaponless, ancient humans used the unlikely combination of sweatiness and relentlessness to gain the upper hand over faster, stronger, more dangerous animals.”
– Harvard Anthropology Professor Daniel Leiberman

Consider a third competitor, overlooked in the investment races between Tortoises and Hares; rather than choosing between fast growth or slow income, the most relentless step forward that will last the longest is growth of income.

Hiding in Plain Sight

It is extremely hard to see this third sweaty choice, capable of outrunning the Tortoises and Hares. Look at this example of two household products companies over the past decade, paying dividends to shareholders. The first is one of the Dividend Kings, the name given to stocks which have increased dividends for more than 50 years in a row. Its rich history and high yield attract a convinced crowd.

The king’s shareholders were rewarded with a consistent dividend yield that was never challenged by this dividend proletariat – which is our own very non-branded, unindexed name for the sweaty working class of dividend payers.

Look at the big difference in dividend yields between these two stocks over the past ten years:

Dividend King vs Low Yield

At no time during the past decade did the lower yield ever come close to catching or passing the understandably more beloved higher yield of the dividend king. At last count this king is owned inside investment products at 3,696 institutions. Our dividend proletariat is owned at 1,494, by comparison.

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This is a guest contribution by Ryan Krueger of investment advisory firm Krueger & Catalano. You can follow Ryan on Twitter  more

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