Master in Engineering Management

Polytechnic University of Puerto Rico

San Juan, P.R Campus.

Assignment 2.1
LW-22-MGM-5600-OL: Engineering Economic Analysis

Ryan Alicea Perez

Submitted on: November, 2022.

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 Assignment 2.1

I. After reading a financial article, which cash flows (present, future, annuity, or gradient) is

implied or mentioned in the article?

The article I selected compares the performance of dividend stocks versus annuities. This

approach is used to compare the pros and cons of both approaches in term on selecting and

annuity for your investment. Some of the benefits of the selected dividend stocks is that their

annualized total historical return is approximately 10-11%. In terms of companies considered

dividend Aristocrats, companies that constantly have raised their dividends for the last 25+ years,

this resulted on annuities that are constantly growing. These dividends are taxed at the moment

they are received by the shareholder, and this can greatly reduce the cash flow associated with

this type of investment. As for annuities, which can be received as lump sum or periodic

payments, they provide a secure constant periodic payment, something that dividend stocks can

fail to do on an economic downturn. Another additional aspect or benefit of the annuity is the

tax-deferred growth benefit it offers, in which the purchaser can claim the investment gains when

needed to be withdraw which can help prevent impact on recurrent taxable events. As for the

annuity there exist risks such as the possibility of the issuer able to pay when required and the

fees that are usually associated with it (administrative, mortality, and fund annual expense)

which can be avoided by investing in individual dividend stocks rather than dividend indexes and

exchange traded funds which are subjected to fees.

As for the annuities cash flows presented in this financial article, it seems that a more attractive

financial product than insured annuities is to invest in reliable and well established dividend

aristocrat stocks, which will recurrently provide an income stream and a positive return on your

investment. In addition, following this path on a 401K plan or a Roth IRA can offset the taxable

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event which will be incurred on an investor account, since the dividends and gains will be taxed

when the money is withdraw, making it as equal as beneficial as an annuity from the tax

minimization perspective.

References:

Ciura, R. (2022, November 8). Are dividend stocks or annuities the better investment? Sure
Dividend. Retrieved November 25, 2022, from https://www.suredividend.com/dividend-
stocks-annuities/