"You can't have your cake and eat it too." I never understood that particular proverb. The whole point in having a cake in the first place is to eat it. The same is true for investing in dividend-paying stocks. Sure, you want the dividends, but you also want the share price to increase over the long term.
Growth and income
Fortunately, you can find solid dividend payers that also promise substantial capital appreciation. In a recent article, James Early, lead analyst for Motley Fool Income Investor, showed that companies with the highest dividend payouts also delivered the highest earnings growth. This surprising phenomenon may happen because dividends tend to indicate financial health. And maintaining a dividend payment may require managers to allocate capital more efficiently.
Dividend stocks with solid growth rates should play a part in most investors' portfolios. The dividends will reduce volatility and provide a steady stream of cash regardless of the direction of the overall market. And increasing earnings growth should translate into higher stock returns, which will boost the overall return of your portfolio.
Seven remarkable stocks
With these insights in mind, I screened for dividend payers with expected annual growth rates of more than 15% over the next five years. I then included only those stocks that have received a high rating from our Motley Fool CAPS investment research service. Here are the results:
|
Company |
Yield |
CAPS Rating |
|---|---|---|
|
Barnes Group |
2.2% |
***** |
|
Norfolk Southern |
1.7% |
**** |
|
Lifetime Brands |
1.2% |
***** |
|
Unilever |
4.2% |
***** |
|
Administaff |
1.2% |
**** |
|
Robert Half Int'l |
1.1% |
***** |
Each of these companies provides a nice combination of income and growth potential. These stocks are only offered up as ideas for future research, however, and do not represent official recommendations.
More of these
If you are looking for additional research on dividend payers that offer solid growth rates, consider a free 30-day trial to Motley Fool Income Investor. James Early and his team are currently beating the market by nearly 10 percentage points over a three-and-a-half year period, and their picks offer a 4% yield on average to boot. Click here if you'd like to eat that cake after all.
This article was published on March 12, 2007. It has been updated.
John Reeves does not own shares of any of the companies listed above. He can honestly say that he has never had a cake that wasn't ultimately eaten. Unilever is a Motley Fool Income Investor choice. The Motley Fool has a disclosure policy.
