Growth stocks are fun to own to be sure, but they're not for everyone all the time. Plenty of investors like the fact that some stocks dish out a little bit of corporate profits as they're earned. The alternative requires a lot of hope that a stock is priced profitably if and when it comes time to raise cash.
In this light, dividend lovers on the hunt for some fresh names may want to consider First Horizon National (FHN), Cardinal Health (CAH -0.06%), and Broadcom (AVGO 1.51%) as prospects for their portfolio. Here's why.
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For First Horizon, smaller is better
Dividend yield: 3.2%
There are plenty of well-known national banks. First Horizon National isn't one of them. The Memphis-based entity only boasts $82 billion in assets and operates roughly 500 branches, offering banking services mostly to retail customers in the southern United States. JPMorgan need not worry.
What First Horizon may lack in size and firepower, however, it makes up for in other ways. Namely, growth. Last year's top-line growth of 4.5% easily outpaced average growth of 2.6% from its peers, and the company's deposit totals rank in the top five within 10 of the south's top 20 metropolitan markets. Behind the scenes, so to speak, First Horizon's Q1 return on equity (ROE) from its regional banking operations stands at 24%. That's more than twice the typical ROE produced by bigger banks like Bank of America or Wells Fargo. Clearly, First Horizon is doing something right; that may have much to do with its small size allowing the bank to offer more locally minded and specialized service.
More important, this successful differentiation -- particularly when paired with the company's ability to integrate acquisitions -- easily supports strong dividend growth. First Horizon skipped its usual quarterly dividend increase at the beginning of this year, opting to hold it at $0.15 per share.
The decision was made more out of an abundance of caution than anything else, though. Prior to that it upped its payout for six straight years, and even last year's strained per-share earnings of $1.22 still would have easily covered this year's current common stock payout of $0.60 -- a payout that's tripled during that timeframe.
The healthcare industry will always need a Cardinal Health
Dividend yield: 3.5%
Medical goods distributor Cardinal Health is never going to be an award-winning growth stock. It's just not that kind of business. It is, however, a business that's always in demand despite persistent worries that legislation could upend the need for its services.
The healthcare industry is a mess. And not just in the United States. It's a mess in the 40-plus other countries Cardinal Health operates in, too, with hospitals, drugmakers, pharmacies, doctors, and governments or insurers all fighting one another (and their own inefficiencies) for a bigger piece of the market. It's conceivable that a hospital or clinic network could do for itself what Cardinal currently does for them. Given primary and secondary caregivers' more pressing priorities, however, it's unlikely any clinic or hospital can do logistics and supply sourcing work as well or as cost-effectively as Cardinal can do it for them. This is the case even in markets where healthcare has been nationalized into a single-payer system.
And that's why Cardinal Health has mostly sailed through a myriad of industry shakeups since its inception 50 years ago, even including 2012's Affordable Care Act, which was supposed to reshape America's healthcare market. That's almost the only time the company's revenue has run into a headwind since the 1980s, and even then it was a temporary lull. While operating earnings haven't grown quite as consistently, they've still certainly grown. Ditto for the dividend, which has been raised every year since 1986. The streak's not likely to end now.
Put off-the-radar Broadcom on your radar
Dividend yield: 3.1%
Finally, add telecommunications technology specialist Broadcom to your list of dividend stocks to consider.
While it's unlikely you'd be able to swing by your favorite consumer electronics store and buy a Broadcom-branded product for consumers, odds are you're using a Broadcom-made product right now without even realizing it. The company manufactures wares ranging from Wi-Fi antennas to optical sensors to cable boxes, just to name a few.
It's relatively boring stuff, but that's the point: It's perpetually marketable. This dynamic supports revenue and earnings that have mostly grown every year since Broadcom was born from its merger with Avago in 2016. Moreover, this relatively reliable stream of earnings supports surprisingly strong dividend growth. The company's payout has improved at an annualized clip of nearly 50% over the course of the five years since the two companies become one. The merger appears to have worked.
Don't look for the payout to continue growing at that pace. It's been slowing for some time now, and the trailing-12-month dividend of $13.54 is consuming a sizable chunk of the company's annual operating profits of around $22 per share. Shareholders should want Broadcom to reinvest some of its profit in new growth opportunities.
Still, it's not doing too shabbily on the forward-looking front despite the chip shortage that's currently rocking a lot of technology companies. Broadcom announced last month it's collaborating with Alphabet's Google to improve their combined cloud computing offering. And just a few days later cable TV and internet giant Comcast was testing Broadcom-made hardware capable of handling multi-gigabit broadband connection speeds. Both are just a sampling of Broadcom's future-ready tech.
