With online brokers offering minimal (or even zero) transaction fees on most stock trades, investors can efficiently put small amounts of capital to work in their portfolios. You can benefit from individual stock returns whether you're investing thousands -- or hundreds -- of dollars in a stock. And with dividend stocks, you can receive income as you wait for capital appreciation to accrue over the coming years.
Ideally, you'll find investments that deliver a balance between these two return categories. Good stock candidates will tend to be businesses with unusually strong growth and profit outlooks, too. Let's look at two such stocks that belong on your income watch list right now.
1. Coca-Cola
With a single Coca-Cola (KO) investment, you get just about everything an investor could want from a dividend stock. You'll own a business with a dominant market position in an attractive global industry, to start. Toss in Coke's industry-leading profitability, with its operating margin roughly double PepsiCo's level. And the beverage giant is expanding sales at a decent clip, meaning you don't have to sacrifice on growth to own this mature business. Coke last reported an 11% organic sales increase in fiscal Q3.
Yet the stock underperformed the market by a wide margin in 2023. Don't spend too much time trying to guess why that might be. Instead, consider buying Coke at its discounted price. Shares are valued at 23 times earnings, down from nearly 30 times earnings in early 2023.
Coke's dividend yield is sitting at just over 3% right now, which means a $500 investment would secure you roughly $15 of annual income to start. And given the consumer staples giant's 60-year-plus track record of annual dividend raises, you can feel confident that this cash flow will grow over the years and decades to come.
2. Microsoft
The modest dividend won't be the main reason why you buy Microsoft (MSFT 1.82%) stock, but it's a nice bonus for shareholders seeking exposure to growth and income. The tech giant is expanding its massive business at a solid clip these days despite weakness in areas like consumer tech devices and the wider PC market. Overall sales rose 12% last quarter to cross $56 billion, mainly thanks to big gains in its cloud services division.
Wall Street is excited about the potential for Microsoft to cash in on the artificial intelligence (AI) boom over the coming years. The software-as-a-service giant is already getting a big lift from the tech, which has spurred more demand across its cloud platform and boosted profit margins. Speaking of profitability, Microsoft sports one of the highest operating margins around. This metric recently touched a new high of 43% of sales. Compare that to Amazon and its 4% profit margin, and you can see why there's so much optimism around Microsoft stock these days.
This enthusiasm has indeed made shares more expensive. You'll have to pay nearly 13 times annual sales for Microsoft stock here in early 2024, up from a P/S ratio of around 9 a year ago. But the company has a good chance at earning that premium over the next several years as it wins more market share in key industries like enterprise software services, digital entertainment, and cybersecurity.
