As long as you reinvest the dividends, income stocks can deliver returns competitive with growth stocks. The following example compares what you'd get by investing $10,000 in a high-dividend stock, the banking giant J.P. Morgan Chase, and Tyco International, a growth-oriented conglomerate with only a token dividend. We used the company's current dividend to estimate the divi- dend yield for the first year and historical dividend payout trends to esti- mate how fast their dividends will grow. For stock price appreciation, we assumed stock prices would grow at two-thirds of the Wall Street analysts' five-year estimated earnings growth rate.
J.P. MORGAN CHASE* YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
VALUE OF STOCK REINVESTING DIVIDEND $10,000 $11,189 $12,575 $14,134 $15,886
(VALUE OF DIVIDEND BEFORE REINVESTING) 360 455 512 575 646
TYCO INTERNATIONAL** YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
VALUE OF STOCK REINVESTING DIVIDEND 10,000 11,200 12,544 14,049 15,735
(VALUE OF DIVIDEND BEFORE REINVESTING) 5 6 6 7 8
By the fifth year, the total value of the J.P. Morgan Chase investment would exceed that in Tyco International.
* 3.6% current dividend yield; 13.0% annual dividend growth; 8.0% annual capital appreciation ** 0.05% current dividend yield; 0% annual dividend growth; 12% annual capital appreciation
Data: BusinessWeek, Thomson Financial/First Call
Before it's here, it's on the Bloomberg Terminal. LEARN MORE