Why I Ditched My 10% Dividend Stocks for Zero-Yield Growth

I’ll never forget the day I proudly told my dad about my new investment strategy. “I’m all in on high-dividend stocks!” I announced over dinner. He just smiled and asked, “What about capital gains?” That simple question changed everything for me.

Look, when you’re starting out investing, the whole dividend yield versus capital gains debate can feel overwhelming. Trust me, I’ve been there! After years of trial and error (emphasis on the error part), I’ve learned that understanding both strategies is crucial for building real wealth.

Here’s the thing – both approaches can make you money, but they work in completely different ways. And choosing between them? Well, that’s where it gets interesting.

What Are Dividend Yields Anyway?

So dividend yield is basically the cash payment you get from owning a stock, expressed as a percentage. If a company pays $2 per share annually and the stock costs $50, you’re looking at a 4% yield. Pretty straightforward, right?

I remember buying my first dividend stock – AT&T – because that 6% yield looked amazing. Every quarter, like clockwork, money would appear in my account. It felt like free money! But here’s what I didn’t realize back then…

Dividend yields can be deceiving. A super high yield might mean the company’s in trouble and the stock price has tanked. Investopedia has a great explanation of how this dividend trap works.

Capital Gains: The Growth Game

Capital gains are different. You make money when the stock price goes up and you sell. No quarterly payments, no “mailbox money” – just pure price appreciation.

My first big win with capital gains was accidentally buying Tesla in 2019. I say accidentally because I bought it for the wrong reasons – I just thought electric cars were cool! But watching that investment triple taught me something important about growth investing.

The thing about capital gains is they’re not taxed until you sell. This creates what financial nerds call “tax efficiency.” Your money compounds without Uncle Sam taking his cut every year.

My Expensive Education in Both Strategies

Let me share a painful lesson. In 2020, I loaded up on high-dividend REITs, chasing those juicy 8-10% yields. Then COVID hit. Many of those companies cut or suspended their dividends entirely!

Meanwhile, my buddy who’d invested in growth stocks like Amazon and Apple? He was crushing it. No dividends, but his portfolio value doubled while mine… well, let’s just say it wasn’t pretty.

But here’s where it gets interesting. During the 2022 tech crash, those same growth stocks got hammered. Suddenly my boring dividend payers didn’t look so bad! This Morningstar article explains the cycle perfectly.

The Tax Reality Check

Okay, let’s talk taxes because this is where things get real. Qualified dividends get taxed at capital gains rates (usually 15-20%), but you pay every single year. Non-qualified dividends? Those get hit with your regular income tax rate – ouch!

Capital gains only get taxed when you sell. Hold for over a year, and you get those sweet long-term capital gains rates. This difference might seem small, but it compounds over time.

I learned this the hard way when I had to pay taxes on $5,000 of dividend income I’d reinvested. That money was gone – I couldn’t even access it! With capital gains, at least I control when I take the tax hit.

Finding Your Sweet Spot

After years of going back and forth, here’s what I’ve figured out. Your age and goals matter way more than any investing guru’s advice. Young with decades ahead? Growth stocks give you more runway for compound returns.

Approaching retirement? Those steady dividend payments start looking mighty attractive. You need income to live on, and selling growth stocks in a down market is painful.

These days, I use what I call the “barbell approach.” About 60% of my portfolio is in growth-oriented index funds for long-term appreciation. The other 40% sits in quality dividend payers for some income and stability. It ain’t perfect, but it works for me!

The Bottom Line on Your Investment Journey

Listen, there’s no one-size-fits-all answer to the dividend yield versus capital gains debate. What works for your coworker might be terrible for you. The key is understanding both strategies and how they fit your life.

Start by asking yourself: Do I need income now or growth for later? Can I handle volatility? What’s my tax situation? Once you know these answers, the path forward becomes clearer.

Remember, you don’t have to choose just one strategy. Many successful investors blend both approaches, adjusting as their life changes. The important thing is to start somewhere and learn as you go.

Want to dive deeper into building your wealth? Check out more investing insights and strategies at Plan Wealth. We’re all about making complex financial concepts simple and actionable!