Q: The Telcos are doing very poorly and I have them on a DRIP program. Should I take the dividends in cash instead and invest the funds in more promising opportunities rather than increasing exposure to this poorly performing sector.
Thanks.
Thanks.
5i Research Answer:
While we cannot personalize responses, much depends on the unique preferences and goals of an investor. If averaging into a position that can see good long-term returns, especially when including dividends, is important, then we like a DRIP program with the telcos. If the dividend income is to be used for lifestyle purchases, or for opportunistic purchases into higher growth stocks, then we like the idea of not using a DRIP with the telcos.
For example, T has a 25 year CAGR of 7.8% when including dividends and the reinvestment of those dividends. If an investor feels this return is too low, then reinvesting the dividends into a higher growth name can make sense over a long period of time.