Dividend and Growth Investing Strategies

By now you understand how to analyse companies, read financial statements, and evaluate stocks. But knowing how to analyse is different from knowing what to look for. Your investing strategy — the lens through which you select stocks — shapes everything from which companies you buy to how long you hold them.

On the DSE, two fundamental strategies have stood the test of time: dividend investing and growth investing. Let us understand both, see how they work with real numbers, and figure out which one fits your situation.

Dividend Investing: Getting Paid to Wait

Dividend investing means buying shares in companies that regularly distribute a portion of their profits to shareholders. Your goal is a steady stream of income, with capital appreciation as a bonus.

How Dividends Work on the DSE

DSE-listed companies declare dividends as a percentage of face value (usually ৳10 per share). A “30% cash dividend” means ৳3 per share. Some companies also declare stock dividends — bonus shares instead of cash.

Example: Building a Dividend Portfolio

Suppose you invest ৳5,00,000 in five dividend-paying stocks:

That is nearly ৳20,000 per year in passive income. Not life-changing on its own — but here is where it gets interesting.

The Power of Dividend Reinvestment

If you reinvest those dividends by buying more shares, your income grows every year even if the dividend rates stay the same — because you own more shares.

Starting with ৳5,00,000 at a 4% yield, reinvesting all dividends:

• Year 1: ৳19,875 in dividends → reinvested
• Year 5: Portfolio grows to roughly ৳6,08,000, generating ৳24,300/year
• Year 10: Portfolio grows to roughly ৳7,40,000, generating ৳29,600/year
• Year 15: Portfolio grows to roughly ৳9,00,000, generating ৳36,000/year

And this assumes zero capital appreciation — just dividend reinvestment alone. In reality, good dividend-paying companies also tend to see their share prices rise over time, amplifying your returns.

What Makes a Good Dividend Stock on the DSE

Not all dividend-paying companies are worth buying. Look for:

• Consistency — Has the company paid dividends for at least 5 consecutive years?
• Payout ratio — Is the company paying out less than 70% of its earnings as dividends? If it is paying out everything, there is no room for growth or safety margin.
• Earnings stability — Volatile earnings lead to volatile dividends. Pharma, power, and consumer goods companies tend to have more stable earnings than cyclical sectors.
• Growing dividends — The best dividend stocks increase their payouts over time. A company that paid ৳2 per share five years ago and now pays ৳3.50 is actively sharing its growth with shareholders.

Growth Investing: Betting on Tomorrow

Growth investing means buying shares in companies whose earnings and revenue are expanding faster than average. You sacrifice current income (these companies often pay little or no dividend) for the potential of significant capital appreciation.

How Growth Stocks Work

A growth company reinvests most of its profits back into the business — expanding capacity, entering new markets, or developing new products. Instead of receiving dividends, you benefit when the company’s rising earnings push its share price higher.

Example: Growth Stock Returns

Suppose you identify a mid-cap technology company trading at ৳120 per share with EPS of ৳8 (P/E of 15). The company is growing earnings at 25% per year.

Your ৳1,00,000 becomes ৳3,05,000 in five years — without receiving a single taka in dividends. The growth in earnings did all the work.

Of course, this assumes the growth rate continues and the P/E multiple stays constant. In reality, if the market gets excited about the company, the P/E could expand, making returns even higher. But growth can also slow, causing the P/E to contract and the stock to fall.

What Makes a Good Growth Stock on the DSE

• Revenue growth — At least 15-20% per year over the past 3 years
• Earnings growth — Consistent and accelerating, not one-time gains
• Competitive advantage — What prevents competitors from taking market share? Strong brands, distribution networks, or regulatory barriers matter.
• Reasonable valuation — Even growth stocks can be overpriced. A company growing at 20% but trading at P/E 50 leaves little margin for error.
• Strong management — Growth companies need capable leaders who can execute expansion plans

Dividend vs Growth: When Each Strategy Works

Neither strategy is inherently better. The right choice depends on your circumstances.

Choose dividend investing if:

• You want regular income from your investments
• You are closer to retirement or financial goals
• You prefer lower volatility and steadier returns
• You want to reinvest income during market downturns

Choose growth investing if:

• You have a long time horizon (10+ years)
• You do not need current income from your portfolio
• You are comfortable with higher volatility
• You can tolerate periods where your portfolio is down

The best approach for most DSE investors is a blend. Allocate a core portion (60-70%) to stable dividend payers for safety and income, and a smaller portion (30-40%) to growth stocks for capital appreciation. This gives you the stability of dividends with the upside potential of growth.

The Dividend Trap and the Growth Trap

Both strategies have their pitfalls.

The dividend trap: A stock with a very high yield (say 8-10%) might seem attractive, but an unusually high yield often signals that the market expects the dividend to be cut. If a stock’s price has fallen 40% while the dividend stays the same, the yield looks great — but the falling price is telling you something is wrong.

The growth trap: A company growing revenue at 30% is exciting, but if it is doing so by taking on massive debt or sacrificing profitability, the growth is unsustainable. When growth slows — and it always does eventually — the stock can fall sharply as the premium valuation evaporates.

Always verify the quality behind the numbers. Sustainable dividends come from sustainable earnings. Sustainable growth comes from genuine competitive advantages.

Combining Both in Practice

A practical approach for a ৳3,00,000 portfolio:

• ৳2,00,000 in dividend stocks — 4-5 established companies across banking, pharma, and power. Target 3.5-5% dividend yield.
• ৳1,00,000 in growth stocks — 2-3 companies with strong earnings momentum in sectors like IT, consumer goods, or engineering.

Review quarterly. If a growth stock matures and starts paying dividends, it may shift categories — and that is fine. The goal is not rigid labels but a portfolio that generates both income and appreciation.

Think About This

1. If you received ৳50,000 in dividends this year, would you spend it or reinvest it? How would your answer change if you were 25 versus 55 years old?

2. A stock has a 6% dividend yield but its earnings have been flat for three years. Another stock pays no dividend but grows earnings at 20% annually. Which would you choose for a 10-year investment — and why?

3. Can a company be both a dividend stock and a growth stock? What would that look like, and can you think of any DSE sectors where this might happen?