Warren Buffett famously said that value and growth are joined at the hip; this also applies to income and growth.
Companies deliver shareholder value if they achieve returns above the cost of capital and invest incremental capital at returns above the cost of capital. This is a basic principle of equity investing. Income is a component of the value delivered. If companies are unable to reinvest capital at attractive rates of return, they will ultimately be unable to support their dividend. Income is therefore intrinsically linked to growth. The growth requirement is evident if we look at the lifecycle of a company over time. In its early stages, a company will have developed a superior product or ...
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