Sometimes growth stocks and income-producing stocks are arrayed against each other as some sort of "bubblegum vs. potato chips" argument. In reality, though, investors can usually find a pretty healthy menu of choices among companies that not only return a meaningful dividend to shareholders, but also have growth prospects strong enough to drive future capital appreciation. Although an investor should always hold a diversified portfolio to minimize company-specific risks, a selection of these stocks could offer a bit of the best of both worlds.
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Abbott Labs (NYSE:ABT) is a frequent-flier in articles about quality companies, dividend-paying companies, quality dividend-paying companies, consistent dividend-payers, and so on. Well, there's a good reason for that - Abbott is a legit star when it comes to sharing its success with its owners. On top of that, Abbott has an uncanny knack for finding breakaway winners just when analysts sour on the company's future growth prospects (first Humira, then drug-coated stents). Abbott does have some near-threats to its growth, but it would seem unwise to assume the worst for this proven healthcare giant.
SEE: Healthy Dividend-Growth Ideas In Healthcare
Given that it has been around so long, it may be hard to think of M&T Bank (NYSE:MTB) as a "growth" candidate. That said, the company still operates in only a relatively small geographic part of the company and there is certainly room to grow by acquisition and/or superior execution. This is a well-run bank that offers a solid dividend and above-average long-term growth prospects.
Waddell & Reed (NYSE:WDR) is a riskier pick for this list, as it the investment banking and asset management business is wickedly competitive and scandal-prone. What's more, Waddell's present dividend is not eye-popping. However, the company has made significant inroads with its asset management business (with its Ivy Funds) and has emerged from two major bubble/crash cycles as a share-gainer. (For more, see Great Dividend Yield Payouts.)
If there is an area where dividend-growth investors may be spoiled for choice, it would probably be in the consumer sector. McDonalds (NYSE:MCD) and Coca-Cola (NYSE:KO) are great companies with excellent dividend track records and extant growth opportunities, but for this article I am tapping Pepsico (NYSE:PEP) and Darden Restaurants (NYSE:DRI) as dividend-growth names to consider.
Pepsico is a global force in beverages and snacks, recently expanding its Russian business with the acquisition of Wimm-Bill-Dann. There is growth potential all around for the company - pushing the snack food business to match the global success of beverages, introducing new products, and otherwise increasing its share of the gaping maw of the packaged food consumer.
Darden is arguably the tougher sell. Olive Garden and Red Lobster dominate their niches, but other concepts like LongHorn Steakhouse, Capital Grille, and Bahama Breeze are not close to that level yet. Still, Americans love to eat out and Darden has a pretty good track record of figuring out what consumers want. Who knows what their next hit may be (upscale burgers? Indian? French?), but there is still ample room for new restaurant ideas and the stability of well-liked brands at competitive prices should secure that dividend.
"Other" may be an unsatisfying heading, but it beats the alternative of trying to cram together other worthy selections in a growth-plus-dividend portfolio. UPS (NYSE:UPS), for instance, offers nearly a 2.9% payout and has an integrated network that would be nearly prohibitive to replicate from scratch. Growth opportunities in the United States may be somewhat limited, but UPS has a whole world of growth opportunities to exploit. (For more, see Dividend Facts You May Not Know.)
On the flip side, Taiwan Semiconductor's (NYSE:TSM) opportunity is focused and clear - continue to be the world's go-to supplier of semiconductor manufacturing services. This name will be more cyclical than many dividend investors would like, but the growth in sales, income, cash flow, and shareholder equity should not be ignored. Moreover, while Taiwan Semiconductor is perhaps not the favorite tech stock of tech stock investors, it does give investors some exposure to that sector.
The Bottom Line
Nothing succeeds quite like success, and all of the companies on this list have a long history of success in their chosen fields. They also offer investors a middle route alternative between capital gains investing and the hunt for dividends. While investors must of course do their own due diligence and buy these names only at compelling prices, the underlying businesses are such that long-term holders should expect a good mix of earnings and dividend growth.
SEE: The Power Of Dividend Growth
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