Dividends4Life: Stocks To Strike A Balance Between Dividend And Growth

In the world of ultra-low interest rates in which we find ourselves today, many investors are drawn to dividend stocks that offer above-average yields. But dividend yields are only half the story, and the future rate of dividend growth is equally important. If the goal is to build a stream of dividend income then a balance needs to be found between yield and growth that gives investors the best results.

Walgreen (WAG) has a yield of 2.25%,General Electric (GE) has a yield of 3.25%, and Intel (INTC) has a yield of 4.15%, for example. But how do you determine what kind of dividend growth is necessary, given the yield? There are two avenues to dividend growth: the company actually increasing the dividend and the investor reinvesting that dividend. By taking advantage of the latter an investor can greatly reduce the minimum dividend growth rate needed to reach their goals, especially with higher-yielding stocks like Intel. The method used there was different than here, and it also didn't take into account reinvested dividends. Both calculations are rough, and different goals will change the numbers, so neither are to be taken as gospel. But this method clearly shows the benefits of reinvesting dividends, which can give a real boost to any dividend growth portfolio.

Source: Seeking Alpha

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