Investors don't usually put growth stocks and income stocks together in the same box. Companies generally don't begin to pay dividends until after their high-growth periods have ended, and they shift from spending heavily on expansion to focusing on earning profits, some of which they can distribute to shareholders.
But being out of the high-growth stage can be relative. Some dividend payers are also demonstrating solid growth with many opportunities. And sometimes, a dividend payer's business -- and its stock price -- may go into a slump for a while, only to rebound in a big way when the company finds a new direction.
PepsiCo (PEP 0.56%), Target (TGT -1.15%), and Procter & Gamble (PG 0.48%) offer the best of both worlds to their shareholders. All had record sales last year, and also offer generous dividends.
Image source: Getty Images.
1. PepsiCo
The first thing that's likely to come to mind when you think of PepsiCo is its ubiquitous cola, but this company is a lot more than sodas, or even beverages. In fact, it is the non-beverage segments that have carried it through the pandemic thus far, and are its real growth drivers.
PepsiCo has a large snack segment that includes brands such as Frito-Lay, Doritos, and Ruffles. Those chip names enjoyed particularly good sales when people were largely staying home and munching, but they remained strong in 2021 as well after most lockdowns were lifted and social-distancing efforts were relaxed.
It also has a breakfast food division with brands like Quaker -- another huge winner in 2020, when people were breakfasting more at home. It, too, posted further growth in 2021.
After a revenue stumble at the beginning of the pandemic -- mostly due to the loss of sales in its away-from-home beverage segment -- PepsiCo ended 2020 with a 4.8% net revenue increase. It accelerated that growth in 2021, with a 13% year-over-year increase as of the end of the third quarter.
PepsiCo's broad range of products gives it an edge now, but also offers greater opportunities in the future. One issue the company is dealing with is inflation. So far, it has successfully raised prices to offset higher costs without impairing demand.
PepsiCo's dividend yields 2.5% at the current share price. And the payout increase it announced in November brought its streak of dividend hikes to 49 consecutive years. Already firmly established among the Dividend Aristocrats, with one more boost in 2022, it will join the exclusive ranks of the Dividend Kings.
Image source: Target.
2. Target
You may not have noticed that Target is a Dividend King because it's not your typical dividend payer. It has been posting some of its best performances ever in the past few years, and was doing so even before the pandemic started. But this retailer has been around for a long time. And recently, guided by the vision of CEO Brian Cornell, it turned itself from an industry laggard into an omnichannel powerhouse, surging ahead of its peers via its digital transformation. That strategy was already paying off before COVID-19 struck, but it became a major advantage when so many Americans were doing their best to socially distance.
Now that people are back out shopping -- and spending more again on nonessential products and services -- Target's growth has tempered. However, in 2021, it was still posting more growth on top of 2020's outsized gains. Customers have learned to trust the brand's omnichannel shopping assortment, and specifically, its same-day delivery services, which remain highly popular -- indeed, vital -- for people who need products quickly. Shoppers also trust Target's private-label brands, which typically match the quality of more expensive name brands, and are largely on-trend. The overall strategy is generating customer loyalty and promoting increased margins.
In 2020, Target posted record annual sales of $92.4 billion, and it kept up the growth in 2021. In the third quarter, comparable sales were up 12.7% on top of 20.7% growth in the prior-year period. Management had previously been predicting fourth-quarter comps growth in the high single-digit percentage range; its new forecast range is from the high single-digit to low double-digit percentages. So we can expect 2021 to end up another record year.
Target's dividend yields 1.63% at the current share price, above the average yield for the S&P 500, and shareholders can expect continued growth in both sales and the payout in 2022.
Image source: Getty Images.
3. Procter & Gamble
Procter & Gamble makes many consumer products you likely use on a daily basis, such as Oral-B dental products and Tide laundry detergent. It owns leading brands in a host of niches in beauty, home care, baby care, and more. Sales skyrocketed earlier in the pandemic, when people were spending more on home and body care. But they continued to increase after more people largely resumed their former habits, and its sales rose 7% in its fiscal 2021, which ended June 30.
The gains have continued into the 2022 fiscal year. Fiscal second-quarter sales increased 6% year over year, and net income increased as well, despite cost pressures. The company has been able to effectively price its products to compensate for its increased costs, and innovations in its many product segments drove higher sales.
Based on the company's performance so far, management improved its full-year sales growth outlook from a range of 2% to 4% to a range of 3% to 4%. That should mean another record sales year for the company, along with increased earnings.
Procter & Gamble's dividend yields 2.18% at the current share price, and it is also a Dividend King, having raised its payout annually for the past 65 years. It has been paying dividends for a staggering 131 years, so this is about as solid an income stock as you can get.
Despite inflationary pressures and supply chain disruptions, 2022 is likely to be another year of record sales and another dividend increase for Procter & Gamble, making it an excellent value stock to have in your portfolio.
