Income investors have always prized dividend stocks for their steady income potential, while growth investors seek market-beating share price growth to make up for lost dividends. But what about stocks providing both dividends and growth? For these "best of both worlds" stocks, we turned to three of our top analysts for their picks as we roll into October.
Brian Orelli: Amgen (AMGN 2.33%) started a dividend in 2011 in large part because its growth story had largely vanished. The stock essentially traded flat over the previous five years.
Ironically the start of the dividend marked the start of a huge run with the stock more than doubling, handily beating the Dow and Nasdaq composite and even keeping pace with the Nasdaq Biotechnology Index with it's much smaller biotechs. And that doesn't even include the dividend payments that have more than doubled since their inception.
The question, of course, is can Amgen continue to grow and is the dividend safe?
The answer to the latter seems clear. Last year, Amgen had about $5.6 billion in free cash flow -- cash from operations minus capital expenditures -- and paid $1.4 billion in dividends. The company can raise its dividend substantially and still not run out of cash.
Sales and earnings growth is less certain, but Amgen has a nice pipeline of phase 3 compounds providing plenty of opportunity for growth. Investors should keep an eye on Amgen's PCSK9 inhibitor, evolocumab, to treat high cholesterol, which is currently under review by U.S. and EU regulators.
George Budwell: My dividend stock pick for October is AbbVie (ABBV -1.29%). AbbVie was spun-off from Abbott Laboratories in 2013 to create a free-standing pharmaceutical company, featuring the anti-inflammatory drug Humira. Humira's sales are on track to break $12 billion this year, generating ample free cash flow in the process.
Management has been putting its free cash to good use by offering a comparatively high dividend yield (relative to other health care companies) of almost 3% and pursuing an aggressive M&A agenda, led by its $55 billion acquisition of Shire (NASDAQ: SHPG).
Why buy shares in October? AbbVie' stock is down this week because of new rules proposed by the Treasury Department aimed at hampering so-called "tax inversions." So, investors appear to be worried that this deal could be in trouble.
My view is that AbbVie has a lot more to gain than simply a lower tax rate by consummating its buyout of Shire. AbbVie is currently far too dependent on Humira for top-line growth, and Shire holds a number of highly profitable drugs like Vyvanse and Replagal in its product portfolio. So I expect this deal to go through as planned, irrespective of the Treasury's actions, helping to diversify AbbVie's revenue base.
Sean Williams: Unlike my two colleagues I'm going to step out of the biotech/pharmaceutical arena and suggest income seekers give the nation's largest health insurance provider, UnitedHealth Group (UNH 0.45%), a closer look.
Why UnitedHealth Group? First off, the company's size gives it incredible clout that it can use to enter more marketplaces than many of its peers. Not to mention, even with a more transparent and competitive marketplace UnitedHealth's size still allows it some degree of control over its own premium pricing.
Perhaps most importantly, with a year of experience under its belt on the Obamacare exchanges UnitedHealth Group is expanding the number of states it's expected to offer insurance in for 2014. I'd expect by the end of fiscal 2015 that UnitedHealth will be turning a nice profit based on an increase in its total Obamacare enrollees.
Best of all for investors, since April 2010 UnitedHealth's policy on dividends changed drastically from paying out just $0.03 on an annual basis to offering a rapidly growing quarterly dividend. Since boosting its payout to $0.125 per share in June 2010 UnitedHealth Group's payout has tripled to $0.375 per share. Currently pacing an extrapolated $1.50 per share in annual dividends UnitedHealth's payout is up 49-fold in just five years, and is currently yielding a respectable 1.8%.
As the fastest growing Dow dividend over the past 10-years, it's a company income seekers can't afford to overlook.
