Dividends4Life: Slow Growth Dividend Stocks: To Reinvest Or Not To Reinvest?

In this article, I will be looking to compare whether an income investor should reinvest dividends from a slow-growing dividend company, or use those dividends to purchase shares of a company with high growth. To illustrate how this process works, I will be using IBM (NYSE:IBM) and Salesforce.com (NYSE:CRM) as an example. IBM has been a great stock when it comes to dividend growth, however, the last decade has been challenging for IBM as it has seen its revenues stagnate. On the other hand, Salesforce has seen significant growth in the last decade, however, for income investors, CRM would not even be a consideration because the stock does not pay a dividend.

In closing, I believe my data has shown that income investors could use this strategy of using dividend to purchase growth, to enhance returns if they own a slow-growing company that pays increasing dividends. In addition, another takeaway from this example is that investors should not simply blindly reinvest dividends just because the company has a strong dividend growth, but rather examine the company and determine if the company has the potential for underlying growth, or if growth will stay stagnated.

Source: Seeking Alpha

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