Dividend Yield or Growth? How About a Good Measure of Each?
Strong revenue growth and decent dividend payouts don’t naturally go hand-in-hand. Companies that fork out above T-bill-rate dividends tend to do so because they need them to keep shareholders happy. Good, consistently-paid dividends usually come from all- grown-up companies that can’t offer investors the chance for great share price gains that a fast-growing adolescent might.
Apple revenue (AAPL), of course, is growing like a weed, but the company won't part with a dime of its cash for dividends. Bristol-Myers Squibb (BMY), on the other hand, is generous with the dividend, but ain't growing much.
But it’s not always an either/or proposition. Long-time dividend companies do hit growth spurts that ramp up their share prices. Smaller, faster-growing companies sometimes offer good dividend yields on the road to respect. Uncovering these companies requires finding a way to see beyond the “dividend” and “growth” labels that normally separate these kinds of investments.
We clicked on the YCharts Stock Screener and set it to find companies with both growth and dividends. With the dividend yield set at 3% or higher, and the revenue growth set at 10% or higher, the Screener found 232 companies. (If you don’t like our admittedly wide parameters, set your own for more or fewer choices.) When we ask the Screener to leave out the shares marked “avoid” – aka, the ones with riskier balance sheets – it still gave us 172 stocks to consider.
A quick review of the list let us whittle away some more temporary plays, like those that met our dividend threshold only by giving shareholders a rotten time lately. For example: Hasbro (HAS) and PepsiCo (PEP) met our dividend requirements pretty much because recent bad news dropped their share price. Looking at their dividend history, we can see that their mere 3% and 3.10% yields are atypically high for these companies. These are not great set ups for long-term dividend plays.
Still, the remaining list leaves us with a wide variety of solid stocks to consider. Forty of them even won attractive ratings from YCharts Pro, indicating that the historic data shows strong fundamentals and an undervalued share price now. Here’s just a sample:
The nuclear power giant Exelon (EXC) is currently paying a dividend yield above 4.5%. The company announced an all-stock, $8 billion takeover of Constellation Energy (CEG) in April, and Warren Buffett recently complimented management. The shares were cheaper before the company announced on Wednesday an unexpectedly big jump in earnings of 39% in the second quarter, paired with better revenue growth than anyone thought possible. Buyers jumped in.
Concerns over the future of nuclear power hit the shares earlier in the year but seem to be waning. YCharts Pro marks the shares as attractive.
Communications Systems (JCS) just joined Russell 3000. The company makes most of the parts that connect communication equipment in homes and businesses, like cables, filters and switches. Big customers include telephone and cable companies that send out installation kits to homeowners and businesses. The company also designs and sets up big wireless networks, like at public schools. Sales are up almost 20% over the past 12 months, matched by bigger earnings gains. Its current dividend yield at 3.30%, but it’s usually higher.
YCharts Pro notes Communications Systems’ strong fundamentals but tags the shares as neutral and slightly overvalued. However, sales and profits are expected to ramp up further as the housing market recovers. While that may not be imminent, the company appears to have found ways to grow in the meantime.
Olin (OLN) is known by gun owners everywhere for its Winchester Ammunition company. But its real cash cow – and biggest division – is a chemical company that makes chlor-alkali used in detergents and bleach. Overall, Olin revenues are up more than 30% in the past 12 months, largely due to huge chemicals sales.
The shares offer a dividend yield of 3.69%. Operating margins are improving, free cash flow is rising, and its debt level is manageable. YCharts Pro gives Olin high marks for fundamentals relative value and rates the shares as attractive.