Compound Growing Dividends vs. Compound Retained Earnings

A recurring topic in dividend-growth investing is the mathematics of compounding growing dividends “versus” the mathematics of a company retaining all of its earnings and compounding them inside the company. The question becomes, which kind of compounding is better for an individual who is saving for or already in retirement.

Personally, I willingly give up the book-value maximization powers of even a Berkshire for the predictably of rising income provided by a focused dividend-growth strategy. I consider the likely increase in share price over time a kicker to the income (rather than the other way around), and the diminished need to sell shares is a real bonus. I fully expect my investments (and other sources of) income to exceed my spending needs, so therefore I can look forward to happily selling shares occasionally to finance significant lifestyle enhancements. I can pick my spots for those.

Source: Seeking Alpha

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