Dividend vs. Growth Investing

Summary of Dividend vs. Growth Investing

by DIY Money

14m•September 15, 2026
Listen to Episode

Overview of DIY Money

This episode of DIY Money opens with some light banter about a chaotic mini-golf fundraising event before moving into the main topic: whether a young investor should focus on dividend investing or growth investing inside a Roth IRA. The hosts explain that, in most cases, younger investors are better served by prioritizing growth and total return rather than chasing high dividends, especially because dividend-heavy stocks can underperform and create hidden tradeoffs.

Golf Banter and Show Housekeeping

The hosts share a story about a recent corporate mini-golf outing that was played in a “best ball” style, with each hole being wildly overdesigned and more like an obstacle course than traditional mini golf.

Notable details from the story

  • The course was designed by kids and included unusual obstacles like ice cream cartons, plywood ramps, and awkward turns.
  • One hole was even played on hardwood flooring, which made the ball roll uncontrollably.
  • The group had fun, but the golfer in the group was frustrated because skill didn’t matter much on such a chaotic course.

The episode also includes the usual housekeeping:

  • Encouragement to sign up for the DIY Daily email.
  • A request to rate, review, and share the show.

Main Question: Dividend Investing vs. Growth Investing

A listener in his early 20s asked whether he should:

  • Invest solely in dividend-paying stocks inside a Roth IRA and reinvest dividends until retirement, or
  • Focus on growth stocks now, then shift toward dividend-paying positions later when he needs income.

Hosts’ Core Advice

1. For young investors, growth usually makes more sense

The hosts strongly lean toward growth investing early in life.

Why:

  • Younger investors typically benefit most from companies that reinvest profits and compound over time.
  • Dividend-paying companies, especially high-yield ones, often sacrifice growth to pay shareholders.
  • The goal early on should be maximizing total return, not just generating income.

2. High dividends can be a trap

They caution against being lured by very high yields.

Examples mentioned:

  • Verizon
  • AT&T
  • GE
  • Kraft Heinz
  • General Mills

The point: a company can pay a nice dividend while the stock itself goes nowhere or declines significantly. A big yield does not automatically mean a better investment.

3. Dividends are not “free money”

The hosts explain that dividends come from a company’s profits, and management must choose what to do with those earnings:

  • Pay them out as dividends
  • Reinvest them into the business
  • Use them for acquisitions or innovation

Warren Buffett’s philosophy was highlighted: he prefers companies that reinvest capital effectively rather than distribute it just because they can.

4. Account type matters a lot

A big part of the answer depends on whether the investment is in a Roth IRA, traditional IRA, or taxable brokerage account.

In a Roth IRA

  • Taxes on dividends and growth are less of an issue because qualified withdrawals are tax-free.
  • So the bigger question becomes: which strategy produces the best long-term growth and flexibility?

In a taxable brokerage account

  • Dividends are taxed in the year they are received.
  • Growth-oriented investments can defer taxes until shares are sold.
  • This tax deferral can be a major advantage.

5. Total return matters more than yield alone

The hosts emphasize that investors should look at:

  • Dividend yield
  • Share price appreciation
  • Business fundamentals
  • Whether a company is actually growing or just paying out cash

A company with a 2% dividend and strong growth can be much better than a company with an 8% dividend and falling share price.

Practical Suggestions

What they recommend considering

  • If you’re young: lean toward growth.
  • If you want dividends later: you can shift strategies later in life.
  • If you want both: consider a diversified dividend ETF instead of chasing individual high-yield stocks.

ETF example mentioned

  • SCHD from Schwab was mentioned as a quality dividend ETF option.
  • The hosts noted it offers:
    • Diversification
    • Lower fees
    • A dividend
    • Strong historical growth relative to many high-yield individual stocks

Key Takeaways

  • Don’t chase yield blindly. High dividends can come at the expense of long-term returns.
  • In a Roth IRA, growth is usually the better default choice for young investors.
  • Total return matters more than dividend income alone.
  • Taxable accounts make growth even more attractive because taxes can be deferred.
  • If you want dividend exposure, a diversified ETF may be safer than selecting individual high-yield stocks.

Closing Thought

The episode ends with the hosts reinforcing their favorite wealth-building principle:

Live on less than you make, invest the rest, and do it for a very long time.

They also remind listeners that the show is for educational purposes and that personal financial decisions should be made with appropriate homework and professional advice.