Owning strong companies that pay great dividends can provide growth and income in your portfolio at the same time. Using this strategy, you can receive consistent dividends while continuing to see your portfolio increase in value.
To find companies that pay strong dividends and have potential for strong growth, look at the consistency of the dividends over a period of time, the companies' ability to pay those dividends and the price of stock.
Three companies that come across as solid dividend payers with strong growth potential are Frontline (NYSE:FRO), BP Prudhoe Bay Royalty Trust (NYSE:BPT) and North European Oil Royalty Trust (NYSE:NRT).
Frontline Continues To Deliver
Too often, investors overlook the fact that having strong dividends and growth can create huge returns for your portfolio. Such is the case with Frontline. The bulk shipping company is paying a dividend of $12, or 35.8%. The recent market selloff has caused shares to fall to an attractive level with a forward price-to-earnings ratio of 6. Second, the company has a seven-year history of paying consistent dividends and raising them. (For more on the value of dividends, read Dividends Still Look Good After All These Years.)
Combine this with the fact that shares hit a 52-week low just last week, and we have all the ingredients necessary for a company that can deliver strong growth and rising, consistent dividends over the long term. While many are unsure what to do, dividend-oriented investors are continuing to pick up shares. By doing this, they can wait until the market realizes the great valuations and provides them with growth. While they own the stock, they will continue to collect the strong dividends as well.
BP Prudhoe Bay Looking Attractive
A royalty trust is not the same as a stock, but it is a way to receive cash flow. Not long ago, when everyone was thinking that gas prices would reach $5 a gallon, BP Prudhoe Bay hit an all-time high. Since that time shares have sold off, and the trust is looking attractive once again. It is trading at a forward P/E ratio of 7. The distribution from this royalty income trust is phenomenal, paying $11.75, or 16.2%. The trust has a history of paying and raising its dividends going all the way back to 1989.
What all this tells us is that we have a great growth-and-dividend play that the markets have brought down to attractive levels once again. It's only a matter of time until shares rebound to their former levels. Those involved will get the growth and great dividends when this happens.
North European Oil Royalty Trust Paying A Great Dividend
This trust is paying a great dividend of $3.56, which is a yield of 14.8%, and has upside potential as well. North European and Prudhoe Bay both have paid and raised their dividends for many years, and both have pulled back to long-term support levels. This means that they continue to pay strong dividends, and in spite of oil prices dropping, the price of each share has held its own. It would not be surprising to see the strong dividends continue from both and, potentially, long-term growth as well. (For more on these types of investments, read Drilling For Big Tax Breaks.)
Clearly, it is possible to continue receiving growth and income without being overly aggressive. By waiting for the markets to bring about attractive long-term valuations, dividend-oriented investors can realize some nice gains and enjoy consistent, strong dividends while they own the stock. When you put these two factors together, your overall return will be much higher compared to market averages.
Like the idea of combining consistent dividends with growth potential? See The Power Of Dividend Growth.