I’m a shareholder in both AT&T Inc. (T) and Visa Inc. (V), as you can see by perusing my FIRE Fund.

The FIRE Fund is my real-money early retirement stock portfolio. I live off of the dividend income it generates on my behalf.

I bought shares in both AT&T and Visa around the same time, between mid-2014 and early 2015.

My position in Visa was initiated in July 2014.

And I added to my stake in AT&T In January 2015.

Of course, as I’ve always been, I was transparent about both investments when they were made. I wrote up each respective investment thesis and shared these moves with the world.

I remember that a lot of readers were very supportive of the AT&T buy.

But many thought the investment in Visa was a bad move. I actually remember the word “speculative” coming up a number of times in comments.

Anyway, Visa’s stock has gone stratospheric since that time. My investment has more than tripled in value.

Meanwhile, AT&T’s stock has mostly tread water since that buy in early 2015.

But could a case be made that AT&T has been the better investment? 

Absolutely.

CAPITAL GAIN

Let’s break this down a bit.

I’ll first go over the capital gain from the respective investments.

I bought 50 shares of AT&T on 1/28/15 for $33.18 per share.

AT&T’s stock is now priced at $37.05.

That’s a capital gain of $193.50, or 11.66%.

I bought 20 (split-adjusted) shares of Visa on 7/9/14 for (a split-adjusted) $53.83 per share.

Visa’s stock is now priced at $174.88.

That’s a capital gain of $2,421.00, or 224.9%.

DIVIDEND INCOME

If we were looking at capital gain, it’s not even a contest.

Visa would be the far, far superior investment thus far. It’s produced much more capital gain – both in dollar and percentage terms.

But capital gain is only part of the picture.

Total return is, of course, the sum of capital gain and investment income.

So in order to get a better picture of how these two investments have stacked up, we need to look at the dividend income they’ve both produced to date.

Those 50 shares of AT&T produced $70.50 in dividend income for 2015, $96.00 in dividend income for 2016, $98.00 in dividend income for 2017, $100.00 in dividend income for 2018 and $102.00 in dividend income for 2019 (including the upcoming announced Q4 dividend).

That’s a total of $466.50 in dividend income on shares that cost me $1,659.00.

So I’ve received 28% of my investment back from dividends alone, at least thus far.

AT&T stock is a classic high-yielding, low-growth dividend growth stock.

It’s stock currently yields 5.45%. So you’re getting a lot of ongoing income. But its dividend growth rate is quite low, with annual dividend increases coming in around the ~2% mark over the last five years.

And you can see that playing out in the above numbers. The dividend income on that 50 shares barely moves up from year to year; however, the aggregate amount of dividend income still stands as significant because of the high starting yield.

If we were to break this down to yield-on-cost, AT&T’s stock is now yielding me 6.15% on my original invested money.

So that’s AT&T.

Meanwhile, my 20 shares of Visa produced $4.40 in dividend income for 2014, $10.00 in dividend income for 2015, $11.70 in dividend income for 2016, $13.80 in dividend income for 2017, $17.60 in dividend income for 2018, and $24.44 in dividend income for 2019 (not yet including the unannounced Q4 2019 dividend).

That’s a total of $81.94 in dividend income on shares that cost me $1076.50.

So I’ve received 7.6% of my investment back from dividends alone, at least thus far.

Visa’s stock is the polar opposite of AT&T. It’s a classic low-yielding, high-growth dividend growth stock. Its stock currently yields just 0.57%, but the five-year dividend growth rate is a monstrous 20.4% – ten times that of AT&T’s stock.

We see how that affects the yearly changes in dividend income on that same 20 shares. For example, the $13.80 in 2017’s dividend income jumped way up to $17.60 for 2018. That’s a 27.5% one-year increase.

However, the aggregate dividend income is still quite small for the investment, even after adjusting for the fact that the capital committed to the Visa investment was smaller than that of the investment in AT&T.

If we were to break this down to yield-on-cost, Visa’s stock is now yielding me 1.9% on my original invested money.

AT&T has paid me back almost four times as much dividend income on my invested money, when compared to Visa. 

Even with the huge delta in dividend growth rates as they stand, it will take decades before Visa catches up to AT&T in terms of their concurrent dividend production on the same invested dollar (or yield-on-cost).

But it might very well be beyond my lifetime before Visa catches up to AT&T in terms of the aggregate dividend income produced on the same invested dollar.

Now, after factoring in the respective dividend tallies from both investments, Visa has a better total return.

Visa’s total return is $2,502.94, or 232.5%, on an initial investment of $1076.50.

AT&T’s total return is $660.00, or 39.8%, on an initial investment of $1,659.00.

Can we now declare Visa as the better investment? 

Not necessarily.

Not for me, anyway.

AGGREGATE DIVIDEND INCOME IS WHAT MATTERS MOST TO ME

As someone who lives off of dividends, and doesn’t sell stocks, capital gain actually has no tangible financial effect on my life. It has no real-world practicality.

Capital gain is effectively deemed moot as it pertains to my ability to remain financially independent. It has no impact on my ability to cover my ongoing expenses.

I pay for expenses with dividends, not capital gain. I don’t go down to the net worth store and buy things with my net worth. Capital gain might look nice on a brokerage spreadsheet, but it doesn’t do anything for my day-to-day life.

Visa’s stock is doing great today. But something could happen tomorrow that leads to a massive drop in its price. Capital gain comes and goes. But the dividends are already in my pocket.

The most important metric to me as it pertains to my investments is aggregate dividend income.

Yes. You read that correctly.

The stock that can produce the most possible dividend income on the smallest possible investment is, for me, the best stock of all.

I understand this goes against mainstream investment beliefs, where total return rules the land. But many mainstream investors buy low-yielding index funds in retirement accounts, obsess over spreadsheets, pat themselves on the back for their net worth, and work at jobs they don’t like until they’re old. Then they commit to slowly selling off the assets they spent all of those valuable years of their young lives accumulating.

No, thanks.

Instead of that silly nonsense, I quit my job at 32 and now live the life of my dreams. 

That was made possible by the growing dividends I collect.

Yes, Visa has outperformed AT&T in terms of both capital gain and total return.

But AT&T has outperformed Visa in terms that matter to my ability to cover my expenses with passive dividend income.

It’s producing much more dividend income today. And it’s pretty likely that it’ll produce much more dividend income 10 years from now.

In fact, it’s likely that AT&T will produce much more aggregate dividend income over the course of my lifetime. And as it relates to the amount of passive income I ultimately collect and have at my disposal to spend, that’s really the most important metric for me.

Of course, I’ll end up with plenty of total return anyhow by virtue of being a dividend growth investor. High-quality dividend growth stocks tend to outperform the market over the long term, and the vast majority of the S&P 500’s total return can be attributed to reinvested dividends.

The business growth that funds dividend growth naturally leads to higher stock prices over time. A more profitable enterprise is worth more, and it will see its stock price reflect that.

Ultimately, however, I think like an owner. Stocks aren’t just pieces of paper. They’re slivers of ownership in a real business. When analyzing a potential investment, I look at the entirety of the business as if I’m buying the whole company. With every stock I have, I pretend as if I own the respective business outright. Now, if I own an entire business, and I plan on owning it until the day I die, the street value of it matters nil to me. What matters is the growing cash flow it can put in my pocket.

THE RATIONALE FOR LOW-YIELDING STOCKS IN MY PORTFOLIO

So why even buy stocks like Visa? 

Yeah, that’s a great question. If I knew for sure that Visa would not produce more aggregate dividend income than AT&T on the same invested dollar over the course of my lifetime, I never would have bought it in the first place.

The problem is – and this is the same problem everyone faces with every decision they make – I don’t have a crystal ball.

Maybe AT&T is forced (by virtue of its massive debt load) to cut its dividend at some point in the future. That would change the math considerably, particularly if Visa can maintain this huge dividend growth for many more years into the future.

Because I cannot predict the future, I invest in a wide variety of high-quality companies that I feel are all in a great position to produce heaps of aggregate dividend income over the course of my lifetime.

Time will tell which one is the best of all.

Now, many of these stocks have very different yield and growth dynamics as it relates to how they get to that same end (with Visa and AT&T being notably divergent). But there are many roads that lead to Rome.

THE RATIONALE FOR AVOIDING TOO MUCH EXPOSURE TO HIGH-YIELDING STOCKS

If the goal is aggregate dividend income, why not just load up the Fund with high-yielding stocks?

Well, I’d repeat what I just noted above about the lack of a crystal ball.

In addition, it ultimately takes a high-quality company to regularly grow its free cash flow enough to sustain growing dividends for a very long time.

Stocks with huge yields (say, over 10%) are often junk.

And that’s precisely the reason why I don’t just load up the Fund with high-yielding stocks.

Yield is generally a proxy for risk. Stocks with sky-high yields tend to be riskier in terms of the business model than stocks with lower yields. Thus, stocks with big yields can often be attached to inferior businesses.

And so those big dividends might looks great today, but they also might be gone tomorrow. Then you’re left with much less aggregate dividend income over the long run than had you simply stuck with higher-quality companies that could reliably endure through thick and thin, allowing you to compound those growing dividends year in and year out. That’s not even to mention the potential loss of initial capital on the investment, putting you even further behind.

Thus, I’ve built the Fund in a way that is heavily reliant on some of the highest-quality companies in the world. The top 10 FIRE Fund holdings are world-class enterprises that are all in a great position to produce tons of aggregate dividend income over the course of the rest of my life.

That said, I do have some higher-yielding stocks when the balance between business quality and yield promotes the right environment for long-term investment as it pertains to my long-term goal to seek out the maximum amount of aggregate dividend income. AT&T is, of course, a pretty good example of that.

CONCLUSION

I thought this was an interesting exercise to take a look at two wildly different dividend growth stocks. I also wanted to provide you an opinion and perspective that runs contrary to a lot of mainstream investment information.

These stocks have performed very differently in key areas, but I knew what I was getting into when I made the investments.

I knew that AT&T was a high-yielding, low-growth dividend growth stock. The stock has done exactly what I thought it would do. The stock price hasn’t been very explosive. But it’s producing gobs of dividends.

Likewise, Visa has done exactly what I thought it would do. It’s a low-yielding, high-growth dividend growth stock. The stock price has increased meteorically. And the YOC is growing quickly because of the big dividend raises, although it will be difficult for it to catch up to AT&T on aggregate dividend income produced on the same invested dollar from the time of investment until my death.

In the area that matters most to a retired dividend growth investor in his 30s, AT&T’s stock is definitely pulling a lot more weight in my portfolio.

I rely on growing cash flow in my pocket, not fluctuating stock prices. 

And when it comes to growing cash flow, AT&T has been fantastic.

In fact, I would deem AT&T to be the better investment thus far, at least based on what I need out of my stocks.

Maybe AT&T cuts its dividend at some point. Maybe the math changes and Visa ends up producing more aggregate dividend income. Time will surely tell. If the facts change, I’ll change my mind.

But looking at where things are at approximately five years into this experiment on these two stocks, AT&T is way ahead.