The allure of dividends is understandable -- getting paid to own stock over a long-term holding period is attractive. However, mature companies often pay dividends that reward shareholders because they have nowhere else to inject their excess capital. Essentially they pay shareholders money to incentivize owning the stock because other companies will likely eclipse them in growth.
Three companies bucking that trend are Texas Instruments (TXN 1.42%), Microsoft (MSFT -1.43%), and Accenture (ACN -0.48%). While all three pay a dividend, each has exciting growth prospects. Growth investors, in particular, should pay attention to these three, as their stability can balance out high flyers within a portfolio.
1. Texas Instruments
The stalwart Texas Instruments was founded back in 1930 and now produces 80,000 products for over 100,000 customers, with heavy revenue concentration in industrial (37%), personal electronics (27%), and automotive (20%). It is a semiconductor company that manages all parts of its products' design, manufacturing, and selling processes. Chances are, if you own an electronic device or a vehicle, you own a Texas Instruments chip of some kind.
After seeing its revenue stagnate and even fall, Texas Instruments has seen impressive growth over the last few years.
Its fourth-quarter earnings saw revenue growth of 19% to $4.8 billion, but its net income growth of 27% to $2.1 billion was even more impressive, meaning Texas Instruments is squeezing more profits out of every dollar it takes in. Unlike many growth-at-all-costs tech stocks, non-GAAP (adjusted) earnings aren't needed to show a profit; Texas Instruments just casually converts 44% of revenue into net income.
With healthy margins, Texas Instruments can reinvest in the business and reward shareholders through dividends and share buybacks. Additionally, with technology becoming integral to everyday life, the cyclicality of the semiconductor business is being compressed. Along with stock price growth, the dividend generates a 2.6% yield and that makes Texas Instruments a prime stock that will pay you to hold onto it.
As Microsoft is the second-largest company by market cap in the world, conventional wisdom would say it is difficult to grow when the company is as big as it is. With its second-quarter earnings (ended Dec. 31), Microsoft trashed this notion. Quarterly revenue was an astounding $51.7 billion -- more than Texas Instruments made during 2019, 2020, and 2021 combined -- and it's growing at a 20% clip year over year.
The star of the report was the Azure cloud segment, which grew 46%, contrasted by Microsoft's worst-performing segment -- the surface laptop series, which only grew 8%. With Microsoft's planned acquisition of Activision Blizzard, the company is making a big expansion into the gaming world. It has long been a gaming hardware provider and it owned a few smaller gaming studios. This move greatly expands its game-development wing.
While Microsoft's dividend yield is a rather low 0.8%, that rate is somewhat depressed because of the stock's strong price appreciation over the past few years. Microsoft has exciting growth prospects ahead and is preserving its cash flows to execute those goals. It also has lots of room to grow the dividend for many years to come.
Compared with the other two companies, Accenture is not as well known. It provides consulting services around the globe in areas like artificial intelligence, cloud, and security. In addition to a=dvising its clients, Accenture has the expertise to create and maintain any solutions devised with the customer.
Accenture's size is between Microsoft ($2.26 trillion) and Texas Instruments ($157 billion), sitting at a market cap of $225 billion. During its fiscal year 2022 first quarter, ended Nov. 30, 2021, revenue grew at 27% to $15 billion year over year. It also had record new bookings, with $16.8 billion in potential revenue scheduled for the business -- an increase of 30% over last year's quarter. Accenture's revenue is not anchored to one industry or region but spread across multiple segments.
|Revenue by Region||Share of Total|
|Revenue by Industry||Share of Total|
|Communication Media & Tech||21%|
|Health & Public Services||18%|
A worldwide recession would hit Accenture's business hard, but a localized one shouldn't derail the company.
Accenture's dividend yield is only 1.1%, but like Microsoft, Accenture's growth prospects make it attractive to investors.
What about stock buybacks and total returns?
Another factor for all three stocks is share repurchases. An alternative method of returning capital to shareholders, stock buybacks reduce the number of shares available and make each share more valuable.
Over the last 10 years, each company has reduced the shares outstanding and rewarded shareholders in addition to dividends. After adding stock buybacks and dividends used to purchase additional shares, the total stock performance significantly outperforms the stock price movement.
If investors trade in and out of the stock, they do not reap long-term shareholder benefits. With these three stocks over the last five years, they would have lost out on 30% to 40% of performance. All three businesses have revenue growth ahead and should reward shareholders along the way. Holding onto the stocks for three to five years will give investors a significant edge over anyone who trades in and out of these businesses.