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No. of Recommendations: 4
If a company is not growing faster than inflation, you need to look closely at what is happening to all the earnings. Three possibilities spring to mind:

* They pay out all the earnings in dividends except what is needed to maintain the earnings stream. In this situation, you would expect the dividend to increase in line with inflation and I would value to company purely based on the dividend income you will receive.

* They use part of the earnings to buy back shares. In this situation, if the total business is growing in line with inflation, you would expect the EPS to be growing faster than inflation. You could value the company on an EPS basis and view it as a growth stock since the EPS is still growing faster than inflation.

* If they do not pay a dividend and if the retained earnings do not result in the EPS growing faster than inflation, then it would seem that the retained earnings are being allocated foolishly (squandered / wasted). I would give such a company a value close to zero.

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