Comparing Dividend Stocks

Compare a couple of dividend stocks and see how they stack up against each other. Mostly to get used to some of the terminology and using the data in calculations to help inform your investment decisions.

GAB and GOOGL

Look at the two stocks GAB and GOOGL. GAB is a closed-end fund that pays a dividend and GOOGL is Alphabet Inc. the parent company of Google. They both pay dividends but the dividend yield is quite different.

GAB pays a quarterly dividend of $0.15 per share and GOOGL pays a quarterly dividend of $0.20 per share. The dividend yield is calculated as the annual dividend divided by the price of the stock.

A couple things to notice GOOGL's raw dividend of 20¢ is higher than GAB's 15¢, but the yield is better for GAB because the price of the stock is lower. This is why it's important to look at the yield and not just the raw dividend.

DRIP

Now use the DRIP Calculator to see how this might play out over a number of years. It's important to note here that this is just focusing on the dividends and not taking into account the growth of the stock price. This is a simplification but can be a good starting point. Many people are buying GOOGL for the growth and the dividend is just a bonus.

On an initial investment of $1000 and an additional $1000 per year in each stock over 5 years. Analyzing what the dividends and reinvested dividends (DRIP) look like:

Notice that GAB performs about 30% better than GOOGL on strictly the dividends. This is because of the higher dividend yield. If we were to take into account the growth of the stock price, GOOGL would likely outperform GAB.

Conclusion

Comparing dividend stocks can be a good way to see how they stack up against each other. It's important to take into account the dividend yield and not just the raw dividend. This can help you build a diversified portfolio that can provide passive income for years to come.