It is not necessary to make a large investment to enter the stock market. If you have some extra cash after paying your bills, why not invest it and let your money compound over time? Growth stocks are the best long-term investment option. With around $250, you can buy promising stocks that can provide good returns as well as consistent passive income.
Two such stocks I have in mind today are e-commerce site Etsy (ETSY +0.48%) and consumer products giant Procter & Gamble (PG +0.25%), which is also a dividend-paying stock. Let's look deeper to see why these are great buys right now.
Image source: Getty Images.
The bull case for Etsy
Etsy is an online marketplace that connects buyers and sellers. It has operations in the United States, the United Kingdom, Canada, Australia, Germany, France, India, and Latin American countries.
E-commerce platforms profited greatly in the pandemic because online shopping was the only option for people trapped at home during the lockdowns. It aided the growth of Etsy's online shopping platform in 2020 and 2021.
However, people returned to physical shopping as things began to get back to normal, and this has made investors skeptical as to how well Etsy could survive in the post-pandemic market. The stock has dropped 38% from its 52-week high.
No doubt, the post-pandemic market has slowed down its business, but the company is still going strong. In the most recent first quarter, despite all skepticism, the company added 7 million new buyers on its platform. Though consolidated gross merchandise sales (GMS) fell 4.6% to $3.1 billion, revenue increased 10.6% year over year to $640 million. Etsy's net income was $74 million, down from $86 million the previous year.
NYSE: ETSY
Key Data Points
To increase revenue, the company increased its seller transaction fee from 5% to 6.5% last year. This strategy could have resulted in sellers abandoning its platform. Fortunately, it worked in its favor. The number of active sellers on its platform increased by 3.8% in the first quarter to 7.9 million.
Etsy's strength is its one-of-a-kind business model that focuses on consumer personalization. This model assists the company in identifying repeat customers or habitual buyers. The Etsy platform enables small, unique, and handcrafted businesses to market their customized products. The company also plans to use generative AI to improve the user experience on Etsy and make it easier for buyers to find items on the platform.
With its differentiated product strategies, the company appears to have a bright future. One advantage of growth stocks is that they have a lot of room for development and untapped potential. The stock is currently reasonably priced to buy and hold for the long term.
NYSE: PG
Key Data Points
The bull case for Procter & Gamble
Procter & Gamble is well-known worldwide for brands such as Pampers, Tide, and Gillette. The company is also recognized for earning the title of Dividend King, which is awarded to a company that has increased its dividend for at least 50 consecutive years. Over the past 66 years, P&G has consistently increased its dividend, assuring investors of the company's stability in the face of market volatility.
In April, the company increased its quarterly dividend again by 3% year over year to $0.94 per share. This marked its 67th dividend increase. It pays a dividend yield of 2.4%, more than the S&P 500's current payout of 1.6%. When choosing dividend stocks, however, yield is not the only factor to consider. Investors ought to examine P&G's dividend payment consistency.
Despite inflationary pressures, net sales increased 4% year over year to $20 billion in the third quarter of fiscal 2023 (ended March 31). Diluted earnings per share (EPS) grew by 3% to $1.37. P&G's diverse business has kept it stable for years and will do so in the future. In the third quarter, the company generated $3.1 billion in free cash flow (or 92% of its net earnings), allowing it to pay out $2.2 billion in dividends.
PG Revenue (Quarterly) data by YCharts.
Despite the macro headwinds, management expects free cash flow to be around 90% of net earnings for the full year. In fiscal 2023, the company should be able to pay close to $9 billion in dividends and repurchase $7.4 billion to $8 billion of common stock. P&G also had a sizable cash balance of $7.2 billion at the end of the quarter.
In the fiscal first quarter, management predicted that rising raw material costs would have an impact on the company's full-year results. However, management raised revenue guidance in the third quarter, which could now increase by 1% over the previous fiscal year. The guidance for diluted EPS has not changed, and it could be in line with or up 4% from last year.
P&G has steadily increased its revenue and earnings over the last five years, as depicted in the chart above. It is both a growth and income stock. Such companies are valuable during market volatility because they are stable and continue to pay regular dividends to investors.
