Do Growth Stocks Pay Dividends? It’s Complicated
Growth stocks are typically on a specific mission. And that’s to generate as much revenue as possible… outpacing rivals in their sector and the markets as a whole.
These stocks can generate a lot of interest from investors. But one thing that can trip up investors is the question of, “Do growth stocks pay dividends?”
The answer, of course, is… it’s complicated. But there are some rules of thumb… rules that are occasionally broken.
Stocks that pay out steady dividends are considered a pretty safe bet in the investing world. They’ve proven they have the ability to stand the test of time. And they have enough inbound cash to dole out to investors.
On the other hand, young and unproven growth stocks can come with their fair share of risk…
As I’ve written before, it doesn’t matter what kind of track record a company has. The CEO of a young business is only one big mistake away from destroying his or her business. Anyone remember the WeWork debacle? Even after its embattled CEO was ousted, it still hasn’t found solid footing. Mind you, that’s a company that hadn’t even IPO’d yet… but had been considered an up-and-comer with growth potential to spare.
Even though WeWork wasn’t profitable, it hit a lot of the other targets that made the company a good candidate for a future growth stock. Quarterly revenue was on the uptick. It had established a strong record of sales growth. And it was leading the way in a growth market.
Where it proved to come up short was in the leadership department. But that’s part of the risk that comes with a business focused on growth.
When a company’s emphasis is on expansion and accelerated revenue increases, it can be very tantalizing from an investor’s point of view. Because naturally, when a company’s revenue increases, its stock price usually isn’t far behind. And some investors start wondering…
Do Growth Stocks Pay Dividends?
When a company puts added weight on growth, it’s usually reward enough for investors. And that’s one reason most growth stocks don’t offer dividends. After all, if a company is solely focused on growth, it’s either reinvesting profits for future growth or maximizing revenue in other ways. So it would be counterintuitive to pay out a dividend to shareholders.
But growth stocks do come in different flavors. They’re not all new companies on the block, operating in uncharted territory. Which means it’s not impossible to find dividend-paying growth stocks. In fact, some companies considered household names are operating under the auspices of the growth model.
Take the credit card industry, for instance. Worldwide, an estimated 85% of transactions are done in cash. But cash isn’t likely to maintain its crown forever…
According to a survey by Fundera, 80% of respondents prefer credit card payments to cash. And the numbers are starting to back that up. Credit card payments have increased by 10% year over year.
As contactless payment becomes more prevalent (with or without the fear of spreading germs), credit cards will take up an increasing share of the payment-processing dollar. And every time someone swipes their card at a convenience store, a credit card company makes money. In other words, credit card companies are in a position to grow… a lot.
The credit card business is so tantalizing that even Apple (Nasdaq: AAPL) is getting in on the action. And it makes perfect sense. With the rise of e-commerce shopping, cash isn’t even an option a lot of the time.
Anytime someone orders another book from Amazon (Nasdaq: AMZN) or a tchotchke from Etsy (Nasdaq: ETSY), a credit card company somewhere is making money.
The Rule That Can Be Broken
Here’s where it gets interesting…
No doubt you’ve heard of the credit card companies leading the charge towards cash-free transactions. Visa (NYSE: V) leads the way. And it’s followed by the likes of MasterCard (NYSE: MA), Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and American Express (NYSE: AXP).
Every single one of those companies pays a dividend. But here’s the thing. Not all of them are in a position to claim the title of growth stock. That’s because Visa far and away leads the competition, with more than 336 million cardholders. And it’s led by CEO Alfred F. Kelly Jr., who has lots of experience in the industry and a penchant for innovation. That’s made Visa a rare growth stock that does indeed pay a dividend.
The Bottom Line on Growth Stocks and Dividends
As you can see, answering the question “Do growth stocks pay dividends?” is a tricky one. Normally, the answer is a straightforward no. But like all good rules, there are exceptions.
Whether you’re looking for the stability of a dividend-paying stock or the excitement of a growth stock with lots of upside potential, there’s no shortage of investment opportunities out there. And if you look in the right place for them, you might just be able to find an investment that offers both stability and excitement.
And if you need help looking for your next big investment opportunity, sign up for the Investment U e-letter below. It’s the easiest way to discover the latest trends moving the market every day.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.