Growth stocks can change your life.
If you pick the right ones.
In my June 28 Strategic Tech Investor column, I gave you several reasons why I’m predicting a strong tech rally for the second half of this year.
When I make a prediction this bold, readers don’t waffle: They either completely agree with my argument or write in to say why I’m flat out wrong.
But this time around STI subscriber Chris12 took us in a completely unexpected direction – and kicked off the old “growth-or-dividends” debate.
- “In my opinion tech companies should at least pay a small dividend, otherwise their shares are virtually worthless – in my layman’s opinion of course,” Chris12 wrote.
“Any company that doesn’t pay some sort of dividend – even a tiny one, is almost worthless. At least Microsoft pays a dividend… (last time I checked).”
I have very strong feelings on this point – for two very good reasons.
First, the “growth-or-dividends” debate goes right to the heart of the tech-investing strategy that I’ve created for you.
And it can determine who gets rich – and who doesn’t.
We Want You to Get Rich
That’s a simple statement. But it’s powerful, too, just because of the dreams and good feelings it evokes.
Let’s start by reiterating the basic premise here at Strategic Tech Investor: The road to wealth is paved by tech.
Whether you are talking about railroads, mass-produced autos, computers, or the Internet, the new classes of technology that come along every decade or so not only change the world …
They also always manage to make some savvy investors very, very rich.
At a time when most Americans have a net worth of $25,000 or less, you want to maximize every profit opportunity that comes your way.
If your goal is to turn that $25,000 into a $250,000 retirement kitty in a few short years, there’s really only one path to travel. You see, you can’t achieve that goal with dividend stocks.
But you can do it with tech.
No other sector but high-technology can produce enough winners – and enough growth – to generate life-changing capital gains.
But as I told you at the start of this column, to generate consistent, sustainable profits, you still have to pick the “right” tech stocks.
That’s why I created my five-part strategy for generating high-tech wealth. And, as Tech-Wealth Rule No. 4 clearly tells us, you have to “focus on growth.”
Otherwise, you are likely to end up with mediocre returns.
Let’s take a look at the stock Chris12 cites as a good example of the type of dividend play he’s seeking.
Over the last year, Microsoft Corp. (NasdaqGS: MSFT) has returned about 14% to investors in price appreciation. (We’ll get to the dividends in a minute.) That’s not bad. But it greatly lags the return of the benchmark Standard & Poor’s 500 Index, which gained 20.6% during the same period – roughly a 45% better return.
To really drive this home, let’s work through a couple examples.
If you started with $10,000, and invested it in Microsoft shares a year ago, those shares would be worth about $11,400. Since MSFT pays a 2.7% dividend, you can add in an additional $270 in gains.
That brings us to a grand total of about $11,670.
But the same $10,000 invested in the S&P 500 would have grown to $12,060 – and that’s even before we factor in dividends.
In other words, just a basic low-cost index fund would have done better.
Now, let’s compare MSFT with some great growth stocks that have crushed the market in the same period.
3D Systems Corp. (NasdaqGS: DDD) is a play on the new, high-growth field of 3D printing. This is a field of technology that could have a total global value of $1 trillion because it can touch virtually every part of the global supply chain – from autos, aircraft and medical devices to even such science-fiction-sounding applications as replacement human organs.
In the past year, even after a major correction, shares of DDD have gained about 101% – meaning a $10,000 investment would have grown to $20,100.
Had you been trolling for stocks based on their dividend payout, however, 3D Systems would have never emitted a “blip” on your investment radar scope. The reason: 3D doesn’t pay a dividend.
So it would have completely passed you by.
Or how about Tesla Motors (NasdaqGS: TSLA). This is a play on the future of electric vehicles and a visionary CEO. The firm’s founder is Elon Musk, the billionaire cofounder of PayPal.
With his firm’s cars getting rave reviews from both drivers and the auto press, the stock has just gone on a tear. Over the past year, it’s returned roughly 280%.
Again, without a single penny in dividends, that original $10,000 investment would have grown to $38,000. In just 12 months…
Don’t get me wrong: I’m not telling you to avoid dividends. Rather, you should look at dividends as a “bonus” for buying a stock that has enough upside to really improve your net worth.
ARM Holdings PLC (NasdaqGS ADR: ARMH) is just that kind of stock. This semiconductor-design firm is a cash-generating machine. It’s a leader in its field – the “Mobile Wave” – and is enjoying explosive growth. ARM designed the chips that many mobile phone and tablet computer companies use to run their devices.
The stock pays a very slight dividend, with a current yield of roughly 0.6%. It’s so small, the payout simply doesn’t matter. But over the past year, ARM Holdings shares are up 65.9%. That’s more than 4.5 times the appreciation of Microsoft, whose dividend rate is – oddly enough – 4.5 times that of ARM.
As a veteran of Silicon Valley – and someone who knows how institutional investors actually operate – I’m going to tell you a secret … something that very few retail investors even suspect.
Many of the institutional players who have billions under management regard high-yielding tech firms as companies whose best days are behind them.
And there’s real merit in this argument. See, when we put our money in growth companies, our goal is simple: We want to find firms with great management teams that are able to stick with and capitalize on the next round of high-tech expansion – in order to stay on the growth path.
But when management keeps boosting the dividend payment instead, they’re basically saying that they see so few opportunities for investing and growing that cash that they believe you can invest it better than they can.
Or, to look at it another way, consider this: If senior management doesn’t have faith in the quality of its new ideas, why should you?
And that brings me back full circle…
If you really want to improve your net worth in a big way, you simply must follow Tech Wealth Rule No. 4 – and target companies that are experiencing meaningful growth.
That’s the only real shot you have of getting the life-changing gains that so many Americans desperately need to boost their standards of living, their savings, and their retirement.
We’ll do all that we can to help you achieve those goals.
[Editor’s Note: Your feedback is very important. What matters more to you: growth or dividends? As always, I welcome your comments, questions, suggestions, and opinions. Post a comment below … I look forward to hearing from you.]