Growth investing is one of the ways that stock buyers can focus their efforts on Wall Street, so new investors should get to know the style. But just because you favor growth investing in your portfolio doesn't mean you have to eliminate all other investment approaches.
Texas Instruments (TXN 1.27%) and Medtronic (MDT 0.62%) both have long and successful histories of growth behind them, have historically high dividend yields, and are currently out of favor among stock buyers for what is likely to be temporary reasons. If you are new to investing, these two stocks are growth opportunities that you'll want to examine, as they also hit on a host of important investment styles.
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1. Texas Instruments: A vital cog in the digital transformation engine
The microchip sector is cyclical, which means that it tends to swing between good periods and bad periods. Right now the chip industry is in the midst of a downswing, which is why Texas Instruments' dividend yield is around 2.6%, toward the high end of its historical yield range. That suggests that the stock is trading at an attractive level.
And yet Texas Instruments has grown its earnings per share on average at a 20% clip over the trailing three-, five-, and 10-year periods. So this is a company that has really delivered for investors over time. It has also increased its dividend annually for around two decades with the past decade sporting an annualized dividend increase of 20%. From this perspective, it is a wonderful growth and income stock.
Texas Instruments achieved its success by focusing on relatively simple chips that help to turn analog events (a button push, for example) into digital signals. These types of chips go into just about everything; the company has 100,000 or so customers. As noted, the chip industry is in a downturn, but more demand is almost certain over the long term as the world continues to become more digital. And Texas Instruments, a $160 billion market cap industry giant, will be there to supply its chips for years to come, growing along with demand.
2. Medtronic: Managing some near-term delays
Medtronic operates in the medical device space, offering products in the cardiac, surgery, neuroscience, and diabetes areas. It is dealing with some self-inflicted wounds right now, as product delays have investors worried that near-term results will be weak. That's pushed the stock lower and the yield toward historically high levels at around 3.3%. Like Texas Instruments it appears to be attractively priced right now. The product delays, meanwhile, should be resolved over time. Getting medical devices approved can be a difficult and time-consuming process.
Medtronic's growth, however, isn't at the same level as Texas Instruments, but the demand in the medical space is far more consistent over time. While you might put off buying the latest cellphone, you can't put off a pacemaker if your heart needs one. Over the past decade, Medtronic's dividend has grown at a 10% annualized clip and the annual payment has been increased for an incredible 45 consecutive years.
So the big question here is really what's going on with new products? The company's surgery robot has been installed for testing and is being well received, but still lacks approval in the U.S. market. Given the positive feedback it has gotten from users abroad, Medtronic is confident about the future. This is roughly the same story with regard to a new diabetes monitoring product. And while a blood pressure procedure has produced mixed results, the benefit of a one-time process over patients having to support an ongoing medication regime gives management confidence that it, too, will be approved in time. All in, the technology on the way looks strong and should support growth over the long term, particularly given the increasing number of people age 65 and older as the large baby boomer generation ages.
Short versus long
If you are new to investing and thinking that you'd rather avoid out-of-favor growth names like Texas Instruments and Medtronic, you need to remember that life is like a sine curve. Good times follow bad and vice versa. You can often get the best prices on a stock when it is facing near-term headwinds that are unlikely to impact the company's long-term future. That's exactly what is going on today at both of these companies. Add in rapid dividend growth and reinvested dividends, and these two growth stocks could turn into big and reliable growth and income winners over time.
