Dividends vs growth: It's a balancing act | Bangkok Post: news

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Dividends vs growth: It's a balancing act

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Are equity investors approaching a bubble scenario in terms of yields? The flight to dividend-paying shares over the last few years has pushed underlying stock values to the point where a correction could result in a sharp reduction of capital values of income-producing shares. 

In the past few years we have seen a major shift toward investing for dividends rather than capital appreciation. Leading the charge have been growth-hungry stockholders who were frustrated because they could not achieve high capital appreciation. Those who were really interested only in growth on their principal prior to the 2008-09 recession have clearly shifted towards securing steady yields from stocks since then. The result is that income distributions make the overall gains on equity investments acceptable in percentage terms.

In the past five years the world has become a low-rate marketplace and the lust for higher yields has grown ever more intense. With capital growth in many sectors as low as it has been in a while, investors have been ignoring the possibilities of great growth deals in favour of steady income in order to satisfy their requirements. Capital protection has become more of a desire as long as income can also be sustained.

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