Consider two companies, A and B. Company A offers little in dividends, and reinvests most its profit. Company B offers generous dividends, but reinvests little of its profit. How would I calculate which company is best to invest in? Given a specified time frame, I will sell all my shares and add the profit to whatever dividends I have received over that time.
My intuition is that a company that reinvests its profits will grow quicker, and therefore its share price will rise faster, so this might be a good bet for the long term. However, a company that offers generous dividends will return more in the short term. Plus, of course, it offers some security in a steady stream of income.
What's the best way of approaching this? Is it a long-term vs short-term decision, or more complex than that?