Investors have a tendency to associate dividend stocks with slow-growth companies that return cash to shareholders because they can’t find a good way to invest it in future business expansion. Dividend stocks are seen as a safe, boring play on safe, boring companies.
However, this association is often undeserved. Many companies that pay dividends to shareholders also generate strong growth. They are strong enough to easily able to return cash to investors each quarter, while continuing to invest aggressively into themselves for growth as well. It’s the best of both worlds.
Here are 3 dividend stocks to buy for yield and growth:
The following dividend stocks have market-beating yields, plus the potential to raise their dividends at a high rate in the years ahead.
Dividend Stocks to Buy: Home Depot (HD)
Home Depot has generated excellent growth over the past several years as it benefited from the booming housing market. Over the past decade, in the aftermath of the Great Recession, consumers invested more of their dollars into home renovations.
The coronavirus pandemic only accelerated this trend, as consumers were forced to spend much more time at home. As the world’s largest home improvement retailer, Home Depot has benefited greatly from these trends, as annual sales now exceed $100 billion.
Home Depot’s growth only increased even further in 2020, despite the weakness in the broader economy. In the third quarter of 2020, Home Depot’s revenue grew 23% to $33.5 billion. Sales per retail square foot rose by 23%, while comparable sales (measuring sales at locations open for at least one year) increased 24%. Earnings-per-share increased 26% for the quarter.
The company has done an excellent job responding to the challenges of the coronavirus pandemic, investing heavily in its own e-commerce platform. This has helped Home Depot continue to grow amid the changing landscape toward online shopping, while so many other physical retailers have struggled to adapt. Last quarter, sales leveraging Home Depot’s online channels increased roughly 80% year-over-year.
Shareholders have benefited from this growth through strong increases to the dividend in recent years. The company managed to raise its dividend by 10% last year, even in a very difficult climate for the U.S. economy. Home Depot has paid a dividend for over 30 consecutive years, and has increased its dividend for more than 10 years in a row. Home Depot is a Dividend Contender with a current yield of 2.2%.
Amgen (AMGN)
Amgen is a major U.S. biotech, with a market cap of $138 billion. The best biotech stocks are known for rapid growth, and Amgen is no exception. In the past five years, the stock has generated annualized returns of 13% per year including dividends.
Its strong returns to shareholders have come from its impressive growth. Amgen is an industry giant that produces therapies specifically addressing cardiovascular disease, oncology, bone health, neuroscience, nephrology, and inflammation.
2020 was another year of growth for Amgen, despite the lingering headwind of the global recession amid the coronavirus pandemic. The company reported fourth-quarter and full-year operating results on February 2.
For the fourth quarter, total revenue increased 7% to $6.6 billion driven by volume growth, which more than offset pressure from lower selling prices. Volumes grew 13% indicating strong demand for the company’s products, led by Otezla, MVASI, and Repatha. Adjusted earnings-per-share increased 5% for the quarter.
For the full year, total revenue increased 9% to over $25 billion, while adjusted earnings-per-share increased 12% to $16.60 in 2020. Free cash flow increased 16.5% to $9.9 billion last year.
Amgen’s competitive advantages include its strong pharmaceutical assets as well as its robust pipeline. Amgen spent 17% of its 2020 revenue on research and development expenses, to invest in a replenished pipeline. As a result, it has a well-stocked pipeline to fuel its future growth. Its investments in R&D and its product pipeline will fuel the company’s future growth.
Due to the company’s strong growth and excellent cash flow generation, it has the ability to pay a hefty dividend and raise the payout each year. Amgen currently yields 3%, which is approximately double the average yield of the broader S&P 500 Index right now. Amgen also generates a high level of dividend growth. It increased its dividend by 10% for the 2021 first quarter payout.
Over the past 5 years, the company has increased its dividend by an average of 12% per year. As a result, Amgen is an attractive combination of dividend yield and growth.
BlackRock (BLK)
BlackRock is one of the largest asset managers in the U.S., with a market capitalization of $110 billion. BlackRock and BLK stock have benefited greatly from the shift to exchange-traded funds.
For the past several years, an increasing number of investors have taken their money out of costly mutual funds which often carried high annual expense ratios of 1% or more, plus additional fees. Instead, many investors have flocked to the convenience and cost savings of exchange-traded funds, or ETFs.
BlackRock has grown alongside this trend, as it is one of the largest ETF sponsors with its iShares products. Assets under management have continued to grow due to the ongoing popularity of ETFs. At the end of 2020, BlackRock’s AUM reached $8.68 trillion. Last year the company saw $391 billion of full-year total net inflows, reflecting 5% organic asset growth.
2020 was another year of strong growth for BlackRock. In the fourth quarter, average AUM and revenue each increased 13% year-over-year. Adjusted earnings-per-share increased 22%, due to revenue growth as well as share repurchases. For the full year, revenue increased 11% to $16.2 billion while adjusted EPS increased 19% to $33.82.
The trend towards index funds and low-cost ETFs shows no signs of slowing down. For this reason, investors can expect continued growth for BlackRock. The company is also shareholder-friendly as it shares its growth with shareholders. The stock has a current dividend yield of 2.3%, and the most recent quarterly dividend payment was a 14% increase from the previous dividend payout.
Over the past five years, dividends have grown at a compound annual rate of 12.5%. With a 2020 dividend payout ratio of 43%, BlackRock has plenty of room to grow dividends at a high rate moving forward.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.