Growth vs Divident Investing on eToro

Traders joining the eToro platform have a great variety of options for the types of assets and strategies for investment, but also different goals in doing so. What perhaps unites the majority of investors is the aspiration to make some kind of a reward. Investing into growth or divident stocks brings this around in different ways and below we will discuss how to implement them on the platform.

(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings.  In fact, Around 67% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)

What is Growth Investing?

While pursuing growth investing the investor focuses on purchasing stocks they believe will rise in price at a faster rate than the market overall and allow investors to grow their invested capital. These kinds of profits made of an increase in a company’s stock price over time are called capital gains and rely on company becoming successful in the future. Many times those are stocks of new emerging and innovative firms that are only beggining to expand their operations and generate sales. These kinds of stocks usually also entail quite a high degree of risks alongside the potential of higher returns (the usual risk-reward tradeoff because of higher volatility). Growth stocks tend not to pay out dividends to shareholders but rather re-invest any profits back into the company to assist its development and expansion.

How to identify growth stocks?

There is no absolute way in how to anticipate how a stock will behave in the future but there are a few indicators one may consider anyway. One may also consider employing fundamental analysis in analyzing company possible future performance alongside studying performance statistics and news on prospects of the industry. Below is a list of some of the things you may consider in the process.

1.Performance statistics. There are many indicators on the platform available that help traders evaluate company’s ability to generate profits in the future and hence appreciate. You may perhaps consider a company’s and its stock’s most basic growth rate values over time as well as the performance of its earnings. Strong growth of earnings in the past may imply that the company will likewise continue to expand in the future (do bear in mind that past results do not guarantee future profits). You may also consider earnings per share (EPS), which is quite indicative of how a company is able to translate its revenue from sales into actual earnings. eToro provides the return on investment statistics ( ROE), a ratio that expresses profits made on an investment as a percentage of the cost for that investment) which you could also consider in the context of the industry as a whole. It is a good indication of how good the management is at turning investor’s capital into returns. You can find these statistics under the ‘Stats’ section after clicking on the stock you are interested in.

Profit margins can also be considered as although the company may generate great sales and hence revenues, poor cost management may make its profit values quite low. Finally price-to-earnings (P/E)  ratio could be a good statistic for understanding whether the stocks are trading at a reasonable price and are not overvalued because of for example, very high demand for them or other temporary price bubbles.

2. Financial Fundamentals. Company’s financial statements can reveal quite a bit on its growth prospects. Income statement can show the most basic information on company’s sales and its expenses and is considered to be one of the most fundamental documents showing firm’s financial stance. eToro provides the data for 4 last quarters so one can compare the change in performance over time. There are also values of the balance sheet provided which demonstrate the amount of assets and liabilities (debt in simple terms) the company acquires over time and the overview of cash holdings in Cash flow statements. Cash flows are important in indicating the prospects of company’s growth as it directly relates to its financial health, ability to repay short-term debt and hence its growth in the future.

3. The type of market the company operates in and its prospects. It seems quite natural that the company that wishes to grow needs to operate in a market that itself would allow for further growth. This could be an industry which produces promising innovative product solutions that customers actually want. Deciding on whether such an industry is indeed a good choice may depend on personal perception of what is likely to be a popular sector but reading news and industry forecasts, alongside with considering demand statistics, may potentially help too as they reflect the general market perception. One may also look at whether this company occupies a significant market share in relation to its competitors or at least seems to be gaining it in order to be able to generate a good sales volume in the targer market. Finally a big target market would allow the company to grow and generate future returns.

In fact eToro itself provides a short overview on what kind of strategy appears to be more suitable for each stock’s past and expected performance, based on its statistics. That is not an investment advice but rather eToro’s outlook based on the available data. You can find it below the statistics as a quick summary overview, as shown on the image below. There can also be a note of caution to look out for while investing.

Overall there is no right way to assess a company’s growth potential and there is quite some space for individual interpretation. Despite some general guidelines but each company may find itself in special circumstances due to its innovative nature. The statistics and financial documents mentioned above serve as a general guideline on assessing company’s overall financial health but many times future performance is hard to predict.

What is Dividend Investing?

Dividend investing is the complete opposite of growth investing and focuses on stocks that are able to provide an income in form of dividends. Dividends are essentially a part of company’s profits that it chooses to pay out to its shareholders. Investing into divident paying stocks may also be a part of a saving plan as a source of additional cashflows. Dividends tend to be paid out by larger and established firms that grow quite slowly. If the company’s share price manages to appreciate too then you may also enjoy capital gains as well as dividends. Do remember that there are certain advantages and disadvantages associated with this strategies but also the fact that dividends are not guaranteed and the company may choose not to distribute them at all. Remeber that any kind of investing entails capital loss risks.

How can you see if a company pays dividends?

There are plenty of various statistics on each company available on the platform which you can find under the ‘Stats’ section of each stock and there is one for dividends too. The divident statistic also provides the value of the dividend yield and it basically shows the amount of the divident as a percentage of its share price, as shown below. This maybe a useful tool for comparison across diffirent companies you are considering investing into.

Does eToro pay out dividends?

eToro pays out dividends on stocks as well as a few other instruments you are holding and you will see them added into your account on the date of the payment. That works for long positions on assets. If you are holding a short positions on stock instead then the amount of the dividend will be deducted accordingly. Please check what applies to your assets.

CopyTrading dividends

Copying a trader means replicating all of their position and actions they perform on their portfolio. If the stock they invest into pays dividends than your proportional positions will receive dividends accordingly. This also means that if the CopyTrader you are copying decides to take out profits out of their portfolio, a proportional amount will be withdrawn from your copy allocation to your account balance too and that is what Copy Dividends are. This function essentially allows you to take advantage of profits the traders you are replicating make.

Taxes on dividends

Receiving a dividend is essentially income paid to you on the stock of the company you own and therefore it is taxable in some occasions. The exact amount of the tax applied on the dividend depends on the regulations of the country in which the company issuing divident is registered. Additionally, if the country you reside in applies taxes on dividends that could be applicable to you too. That is something you need to verify to ensure the values are correct.

Deciding on which kind of investing you would like to pursue depends on your goals of trading; those looking for a regular income in form of dividend payments may consider divident investing whereas those wanting to purchase stocks that will hopefully increase in value over time may consider growth investing instead. There are certainly some benefits and disadvantages attached to each strategy. Remember that any kind of trading involves risks of loosing capital and enjoy trading on the eToro platform!

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eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.