Income investors aren't suffering from a lack of stock choices right now. But while generous yields aren't very hard to find today, the combination of steady income and solid growth is much more rare. Below, we'll look at why McDonald's (MCD 0.38%), Hasbro (HAS 0.22%), and Procter & Gamble (PG 0.86%) have what it takes to deliver on both of these requirements.
McDonald's has staying power
It wasn't long ago that investors were buying McDonald's mainly for its above-average yield. After all, the fast-food chain's stock underperformed the market for a brutal stretch in 2014 and 2015 thanks to disappointing sales growth. The slump pushed its yield above 3% as the business shed market share.
Image source: Getty Images.
A recent stock rally has lowered that figure to 2.4%, but the restaurant giant still pays above the broader market's 2% yield. Meanwhile, investors who buy McDonald's today are joining in at a more promising time for the business. The company in July posted its strongest growth rate in years, with global comparable-store sales up 6.6% in the fiscal second quarter.
Mickey D's plans to keep that positive momentum through more popular improvements to the menu. Its digital ordering initiative could also make it one of the biggest delivery services in the country once it rolls out over the coming quarters. In any case, investors can expect the company's already stellar profit margin reaching new highs as it shifts its business model more heavily toward franchising.
Hasbro is winning share
Hasbro didn't raise its dividend during the worst of the global recession in 2009, and so the toys and games specialist can't claim membership in that exclusive club known as Dividend Aristocrats. However, its payout jumped by 20% or more in five of the past 10 years. Overall, the dividend has risen at a 14% compound annual rate since 2007.
Hasbro's strategy involves marketing a mix of its core toy brands, including global hits like Nerf, Transformers, and Monopoly, along with licensed products led by its wide-ranging partnership with Disney. That diverse approach has helped revenue rise 7% over the last six months as net income spiked 35%, to $136 million. Peer Mattel, in contrast, reported falling sales and net losses over the same period.
Hasbro has high hopes for its small, but growing, media business, which now includes the successful animation studio, Boulder Media. By building entertainment content around its brands, the company should be able to boost the value of those franchises, while more easily launching new ones that don't depend on the movie release plans of Disney and others.
Procter & Gamble aims for a rebound
Consumer-products giant Procter & Gamble boasts many of the key characteristics that make for an ideal dividend stock. Its dominant market position, delivered through global franchises such as Gillette, Pampers, and Tide, help it generate consistently strong profitability. Operating margin is above 20% of sales, in fact, and should rise as the company continues reducing its expense burden.
PG Operating Margin (TTM) data by YCharts.
P&G has demonstrated a solid commitment to returning cash to shareholders, too. Its annual dividend-hiking streak stands at 61 consecutive years, and management ramped up their stock-repurchase spending to help push cash returns to above $20 billion over just the past 12 months.
On the down side, Procter & Gamble has seen its market-share position slip recently as rivals -- both online and in stores -- chipped away at its premium-priced products. A long string of losses like that could spell trouble for this business.
Yet operating conditions appear to be improving, which is why P&G is targeting a second straight year of accelerating growth ahead, with organic sales gains rising to 2.5% from 1% two years ago.
