Dividend Growth Stocks vs. S&P 500 Index Fund

Comments (43) on “Dividend Growth Stocks vs. S&P 500 Index Fund”

1. First and foremost, thank you for answering my question! I love your insight, and totally agree with your points. However, I should have clarified my point – the SP 500 meets many of our expectations in that it yearly (with the exception of 2008) increases it’s dividend BUT it reduces your risk exposure. As you’ve made the point before, your starting yield is NOT the most important factor. You want a solid yield that is always increasing 5-10% on a year over year basis and increases our yield on investment. Rambling a bit here, but I argue for the SP 500 in that it (1) pays a dividend (2) increases on a yearly basis and (3) reduces your risk exposure and is more likely to preserve your capital appreciation. I would be interested to do a side by side comparison of dividends, growth and overall value (dividends reinvested, fee of .05%, etc.) of an initial lump sum investment in SP 500 vs blue chip stocks to see how often (if ever) the SP 500 outperforms. It may be a misconception that all our of favorite dividend stocks will outperform and sometimes our favorite dividend stocks blow up (BAC, GE, C, etc.).

   1. Good questions! A lot of food for thought here. I’ll have to think about the best way to do this comparison. I do understand now what you’re trying to accomplish, and think it’s possible. Just a bit of work…

2. I think of my S&P 500 Index ETF’s (actually, my total market etf’s) as a proxy for large growth companies. I don’t always feel comfortable investing in high P/E stocks but these are often the companies that come to dominate cap-weighted indexes. So, I get to benefit off growth stocks, have massive diversification and a small dividend yield with a single product. I then augment my portfolio by buying out-of-favor dividend payers knowing that I can’t do “too much damage” because of the foundation of my indexed products.

   1. Thanks for stopping by and sharing your strategy! Greatly appreciate it.

3. Excellent answer, Ian. I like the approach of picking off undervalued, high quality, dividend stocks, when the opportunities arise. As an example, Kellogg Company (K), it’s one I’m buying right now. I very much respect the consistency of your message and how loyal you are to the approach… nowadays, your mindset is very refreshing. I have a question for you, do you know of a service/community that exists for like-minded DG investors. It would be nice to find a community where we could all hangout online and discuss ideas, support one another, and help just share a common passion.

   1. Thanks so much for the kind words, means the world to me! Always wonderful to find like-minded investors. Regarding online communities, I have found the most like-minded dividend investors on dividend blogs and YouTube. Hoping to build a community here on my channel. Anyone else know of any online communities for dividend investors?

   2. I believe reddit is the place for that

4. Hi Ian, even if an index fund has a low yield and you might have to eat in to the principal to live off of, given that the return is anywhere from 8-12% annual, does it really matter that you have to sell a few shares? I know that the 8-12% return is a huge assumption, but assuming it’s valid wouldn’t it be better to go with the index fund? Second question, even though the yield is approximately 2% on an index, give enough principal, wouldn’t it be enough to live off of? What is the problem? That it takes too long? that it requires too big of a principal? Third, when proponents of index investing say that picking individual stocks leads to poorer results than index investing, how would you respond?

   1. Online Math Training, thanks for the great question! In my personal experience, by choosing the right dividend growth stocks (and getting in when valuations are attractive), I have almost always been able to outperform the S&P 500 (often very handsomely by orders of magnitude).

      Dating back to 1928, the S&P 500 has returned about 10% per year according to my online research. I like to model my personal portfolio at 7% going forward since that takes into account buying power erosion from inflation and the fact that the market is at all time highs and I’m not sure if the historical average is sustainable in our near future.

      You’ll see throughout my videos that I always model extremely conservatively. I do this because I never want to expose myself to false hopes. I’d rather have a nice surprise that any possible downside surprise. Hope this helps! Thanks for all of your continued questions!

   2. Thanks Ian for the response. I’m very confused because I’ve been reading this book by Jim Collins called The Simple Path to Wealth, and in it he says stock picking is like trying to be like Bruce Lee or Mohamed Ali in boxing. It’s possible for some, but nearly impossible for the rest of us. He suggests index investing, not only because it is simpler but because it does BETTER than any form of active investing. I’m not sure if you’ve read this book, but perhaps making some videos in response to the points he makes would be very helpful. He says that he’s willing to put in the extra effort if it will lead to better results; but, the fact is, according to Collins, is that you can’t beat the market.

   3. Online Math Training I’ve been wondering this same thing as I’ve been watching Ian’s videos. How does dividend growth investing beat the market but actively managed mutual funds cannot??

   4. If he was able to outperform the market consistently over market downturns, he would be a fund manager… 👀

   5. Do you think Warren Buffet made his fortune buying index funds?

5. what are your thoughts on just getting a mutual fund specializing in dividend paying companies instead of buying individual stocks

   1. Thanks for asking! I discuss a bit in this video: https://www.youtube.com/watch?v=yaIxNhSj1T0

6. Hi Ian. I am continuing to enjoy your videos. Your demeanor is calm and friendly and ideal for a complex topic like stocks. I also feel inspired to start my own youtube channel (albeit for a very different topic) as I too want to help people and if I happen to make passive income off of it, it’ll be a bonus! Anyway, my comment is in regards to fees: Unfortunately I have yet to buy a stock, (but I will very soon) and I plan on dollar cost averaging no matter what. But isnt it true that every time you add more shares this considered trading and doesnt that cost a fee every time? If so, logically I would just buy a bulk of shares once of twice a year.

   1. Thanks, David, for the kind words and support! Wishing you all the greatest with your YouTube channel. I can tell you that the YouTube journey is really exciting. As it pertains to dollar cost averaging, I like to keep fees < 2% of purchase price. I always strive to keep fees as close to zero as possible. In fact, there are still some fee-free DRIPs that make this possible. More info this in video: https://www.youtube.com/watch?v=KBGlaQ0dg8s

7. how much money did you begin investing with? I am looking at some index funds from a bank that require a minimum of $500.

   also, what are your thoughts on mortgage funds as passive income?

8. How about VYM or like high dividend yield index/ETFs to avoid stock transactions fees?

   1. Pravina Fi sphd is good too

9. Agreed! The s&p is just a top rated ranking system! Not much to look at on that list.

   1. “Not much to look at”
      Yet averages 7% return every year

10. Exactly what I was looking for. Thank you.

    1. Wishing you all the greatest!

11. What about DRGO or VIG?

12. What about if the fed raises interest rates? That would cause dividends to drop or vanish

13. Dividen yield might be low for the s&p 500 but look at the growth. Especially over the past 5 years. Hint: it’s over 50%

    1. how sustainable is that growth tho, ya know? some years are good, some are bad. dividends, however, seem more reliable over the long term.

    2. Show me an active investor who beat the s&p over 30+ years

    3. I realize it is kind of off topic but does anybody know of a good place to stream newly released movies online?

    4. @Collin Abdullah I would suggest FlixZone. Just google for it =)

14. The yield might seem low, but once you factor in the growth over the years, especially if you are holding forever, the 2% yield is a much larger payout than a company that pays a 3% dividend but has minimal growth

15. I think the better plan would be to invest in the S&P 500 using an ETF like SPLG with a low expense ratio over a long period of time. Then when you are close to retirement switch over to slow to no growth DGI stocks or a DGI fund. Just my 2 worthless cents of advice.

    1. SuperSteelers nah my strategy is invest all my money into Tesla when I’m young then pull out when the stock hits 5k then invest it all into sphd and vym

    2. Not even Elon Musk is all-in on Tesla.

    3. Daniel B 😂

16. 401K is S&P 500,TD Ameritrade is Vanguard TSM index fund

17. Everyone needs to know that dividend yields actually hurts a company’s growth in the long-term. Sure, you may be getting 2-3% per share, but you are sacrificing growth up to 10% on year on average based on share value.

18. How many shares do you need to have before you stop reinvesting the dividends and start living off those dividend returns?

19. This is my favorite video of all time

    1. Thanks for your incredibly kind words!

20. I can appreciate a teacher using his notes 😁

    1. Thanks for watching the original videos! Wishing you all the greatest!

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