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When investing for long-term income, it's easy to focus only on dividend stocks. FTSE 100. But I consider that FTSE 250With a larger balance of growth stocks, you could even outperform.
The thing is, we don't need dividends to earn income from our investments. We can always sell a few shares each year and receive the cash that way.
Some people might gasp in horror at the thought. I mean, we should try to hold forever and even reinvest cash from dividends when we can, right?
How long can we last if we reduce our real capital?
It's all effective
Well, in recent decades, many people have retired with their wallets full of Nasdaq growth stocks. And almost none of them pay a single cent in dividends.
But their wealth has grown well above the market average and they can afford to sell stocks more easily.
And it is always possible to invest for growth now, if that is the investor's preferred long-term strategy. And then switch to blue chip dividend stocks in retirement to try to preserve capital.
All of this leads me to one thing. I see some great value stocks in the FTSE 250 at the moment, at a time when the smaller index is on one of its bearish runs.
long term game
Games workshop (LSE: GAW) is one. The stock has a forecast price-to-earnings (P/E) ratio of 22, which will fall to 19 by 2026. There is clearly a growth premium built into that valuation.
But I like to look at the P/E in light of a company's net debt. And oh, there aren't any. Games Workshop is in a net cash position.
Compared to, say, the FTSE 100 growth champion Rolls-Royce HoldingsIt has a higher P/E and carries net debt of a couple billion.
There is still growth risk at Games Workshop. And I distrust a company that depends on what people do for leisure. But that assessment seems fair to me.
Oh, and a dividend yield of 4.4% is expected. So maybe it's not so far from my usual strategy after all!
Global growth
When I think about global growth stocks, my mind goes to investment trusts. I think they can be a great way to spread risk across a basket of stocks.
Scottish Mortgage Investment Trust might be the best known, with his choice of Nasdaq stocks. But I'm thinking about the little ones. Alliance Trust here.
It keeps microsoft stock. and there are some amazon.com and Nvidia there too.
There is only a modest 2% dividend. And the stock price could be volatile, just like the Nasdaq. Oh, and the Nasdaq might be up a bit again now.
But to help build a fund from which to eventually generate passive income, I think it could be a good addition.
just a beginning
These are just two that I'm looking at in the smaller FTSE 250 index. And I really think we could generate good long-term income from it.
