Is dividend investing old-fashioned?

Are other investment styles more appropriate in a fast-paced investment world?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The investment world continues to change and it could be argued that investors should change with it. After all, communications and technology are now far faster and more advanced than they ever have been. Investors anywhere in the world can gain real-time access to prices, company accounts and other information which was simply unavailable a decade or two ago.

Therefore, it could be argued that investing for dividends is becoming rather old-fashioned. It became popular because it was relatively simple, easy to replicate for time-poor private investors and also did not rely on up-to-date information. Furthermore, it generally meant shares could be held for a long period, which meant commission costs were lower at a time when online sharedealing did not exist.

A changing world

However, the reality is that dividend investing could become more, rather than less, popular in future years. In the last decade, the popularity of income investing has increased as investors have sought a relatively stable and resilient means of building wealth. This is at least partly due to the credit crunch, which meant many investors were more aware than ever of the potential losses which come with investing. Therefore, buying more mature, financially stronger and more robust businesses which paid high dividends became a more balanced means of generating a high return.

Now, the global economic outlook is changing. While it was relatively straightforward to generate an inflation-beating income in the past decade, doing so in the next decade may prove to be a greater challenge. Higher spending and lower taxation in the US could raise inflation. This may be exported across the globe and lead to even greater demand for higher-yielding shares. As such, dividend shares could become even more in-demand in future.

A changing strategy

The central theme of dividend investing may change in future. While it has been seen as a means of generating a lower-risk return in the last decade following the credit crunch, in future it could be seen as a growth area by investors. In other words, companies may seek to offer inflation-beating dividend growth in the knowledge that this is likely to act as a positive catalyst on their share prices. This may lead to a range of companies which have not traditionally been seen as dividend stocks gradually become viable income plays for the long run.

Takeaway

While dividend investing may be viewed as a traditional and somewhat unexciting means of investing, it may be subject to a makeover in the medium term. Dividend investing in response to higher inflation may become much more fashionable and dividend growth in particular may become much more important not just to retirees, but also to growth investors seeking high capital gains.

The popularity of dividend stocks could be about to increase. Therefore buying stocks with high yields and the capacity to raise dividends at a faster pace than inflation may be a prudent means of generating index-beating total returns in 2017 and beyond.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »