Investors love dividend stocks for a few reasons. First and foremost, that sweet dividend income.
After all, investors like when an investment returns money in the form of dividends, and has the potential to appreciate in price. That growth potential is usually the secondary consideration. Stocks that possess both characteristics are true winners.
The catch-22 is that dividends are usually only paid out by well-established companies whose growth has plateaued. Such companies tend to be stable, but they aren’t big gainers either. So investors who can find stocks that both pay a dividend and appreciate in price have found something special indeed.
These stocks offer attractive dividend yields as well as payout ratios that leave sufficient income to be reinvested in the company. Thus, they have the necessary resources to grow. They’ll also necessarily have strong catalysts for growth.
Here are 6 dividend stocks to buy for yield and growth:
- AbbVie (NYSE:ABBV)
- Carlisle Company (NYSE:CSL)
- Skyworks Solutions (NASDAQ:SWKS)
- Coca-Cola (NYSE:KO)
- Automatic Data Processing (NASDAQ:ADP)
- Johnson & Johnson (NYSE:JNJ)
Excessive dividend payout ratios stifle the long-term growth of given stocks because too much of earnings is being paid to shareholders. Thus. too little capital is being reinvested into the company. Therefore growth lags. So, there is a fine line to tread for investors seeking dividend yield and growth. Yet, that is exactly what the stocks below offer.
Dividend Stocks To Buy For Yield And Growth: AbbVie (ABBV)
AbbVie isn’t the stablest company out, making it a somewhat controversial pick to lead a list of dividend stock recommendations. That said, there are plenty of reasons investors should consider ABBV stock.
Current prices are below $90, but have been over $100 in the past year, meaning there’s room for growth. The company is also slightly undervalued. Combine that with the fact that analysts rate the stock a consensus “buy” with a median target price of $110, and it looks good.
The company’s dividend isn’t perfect but it is steady. It recently declared a quarterly cash dividend of $1.18 per share. The company has increased its dividend by 195% since its inception in 2013.
AbbVie has a pipeline of pharmaceuticals with lots of future growth potential. Its focus spans multiple therapeutic areas. Humira is the company’s most well-known therapeutic and should fund the development of future potential products.
The dividend payout ratio is somewhat high. Yet, the company has a strong WACC vs. ROIC ratio. ROIC is above 16%, while WACC is around 4%. As a member of the dividend aristocrats, this one is worth a look for its dividend, product pipeline, and its future growth.
Carlisle Companies (CSL)
Carlisle Companies is an engineering Original Equipment Manufacturer (OEM) and aftermarket group. The company operates businesses across construction, interconnect technology, fluid technology and brakes & friction.
CSL stock has suffered during the pandemic but recently announced a 5% dividend increase — the 44th consecutive annual increase. The company managed to beat Q2 EPS consensus estimates of $1.10 by 26 cents. That should give investors some indication of the company’s ability to perform under tough constraints.
Investors should note that CSL shares have been particularly gutted by the pandemic. Shares traded in the $160 range, but currently sit near $120. This stock is an aerospace play and analysts are keen, having overwhelmingly rated the stock a “buy.”
The company repurchased 556,000 shares in the second quarter. So current owners now have a slightly larger ownership claim on the company’s future earnings. Further, it has a dividend payout rate of 0.3. This leaves plenty of earnings to be directed back into company investment.
Combine that with its ability in manufacturing in industries that will rebound post-pandemic and likely reshoring of American manufacturing, and this stock is very attractive.
Skyworks Solutions (SWKS)
Skyworks is a semiconductor manufacturer that’s been in operation since 1962. Share prices dipped as low as $67.90 at the beginning of the pandemic and have reached a current level of $136.
Clearly the company has some volatility, which may deter investors. However, analysts consider it “overweight,” with price targets ranging as high as $170.
One reason analysts like this company is its positioning relative to 5G. The company should do well as 5G is rolled out in the U.S. So while this association may lead to some overvaluation, the company is steady.
The company has seen a dividend increase since 2014 recently raising it again in August. SWKS stock is underpinned by a very reasonable 0.39 dividend payout ratio. Clearly the firm isn’t trying to entice investors with an unsustainable dividend. What investors will get from this company is a stable dividend and a play at 5G, IoT and the growth associated therein.
Its solid financial strength and profitability should also draw in investors. Although PS ratio and price are near historic highs, there are many positives. I’m a big proponent of ROIC relative to WACC because it indicates broadly how well a given company invests capital. Skyworks’ ROIC is 21.45%, relative to a WACC of 8.41%.
So while prices are high and may not rise significantly, the company takes capital and makes it work for investors. That’s a big plus, and should lead to long term price appreciation.
Coca-Cola is very steady in terms of overall company structure and dividend history. As you likely know, Warren Buffett is a big fan of this company: it accounts for nearly 9% of his total portfolio.
One reason investors like KO stock is that it has provided a continuous dividend increase since 1963. The company should likely report another 41 cent dividend at the end of Q4. This will amount to an annual dividend of $1.64 on a stock with a share price near $50. Maybe not amazing, but certainly steady and respectable.
And while the company isn’t likely to skyrocket price-wise, analysts do believe it should appreciate. Current sentiment is 14 to 4, in favor of buying over holding. Shares still have 15-20% of wiggle room to meet their 52-week high as well.
Coca-Cola’s 0.76 dividend payout ratio is a bit high but nothing to worry about. The stock is a very stable play for dividend investors and does have growth potential despite its age.
With a 5-year yield on cost of 4.19%, investors could do much worse and not find such stability.
Automatic Data Processing (ADP)
ADP had a significant portion of its market capitalization sheared off during the pandemic. ADP stock was near $180 back in February, but trades at $133 today.
However, operating margins and revenue per share are both growing. This indicates strong fundamentals and may well equate to price appreciation. Given that shares have lost value, there is a possibility of markets warming up to them on a potential price rebound.
The previous 4 quarters have yielded dividends totaling $3.64. The dividend yield is 2.73% which is modest. ADP’s dividend yield ratio is 0.62, leaving plenty of earnings to be redirected toward company growth. The steady nature of ADP’s dividend and the potential for price appreciation make it a valuable stock to consider.
Further, the company is quite profitable. Its operating margin percentage, net margin percentage and ROE percentage are all above the 90th percentile within its industry.
Johnson & Johnson (JNJ)
Johnson & Johnson is a safe household name. The company is well-diversified and holds up in the toughest of times. JNJ stock is only about $10 off of its 52-week high currently, so it may be a buy on a future dip rather than at the current moment.
The company is fairly valued and very profitable. Its ability to make high returns on invested capital, along with a low WACC ratio, equate to big profits. This company can appreciate in price based on its rock-steady fundamentals. The dividend has increased since 1963. Since the company is fairly valued and well-run, I see no reason for it to decline medium to long term.
Analysts estimate its target price at $170 and 10 rate it a “buy,” with 4 having it as a “hold.” The yield is moderate at 2.7% but again, very steady. Should prices near that $170 target, investors will be well rewarded.
On the date of publication, Alex Sirois did not hold (either directly or indirectly) any positions in the securities mentioned in this article.