Quality dividend stocks that pay 3-5% yields are great. They help stabilize your portfolio and give you a steady income in good and bad times. However, you can boost your returns meaningfully by spicing up your portfolio with some high-growth stocks.
Let’s take a look at Alimentation Couche-Tard Inc. (TSX:ATD.B) and Exco Technologies Limited (TSX:XTC) as high-growth possibilities.
Couche-Tard advanced 544% in the last decade. Along with its dividends, it delivered an average annualized return of 23.3%! This was much higher than the average annualized market returns of 6.8% in the same period.
An investment of $10,000 in Couche-Tard 10 years ago would be $99,992 today, while the same investment in the general market would only be $20,572.
In the past year alone, Couche-Tard rose 19%, while the Canadian and U.S. general markets have gone down 8% and 1%, respectively.
Couche-Tard is a convenience store leader that’s based in Canada. Based on the number of company-operated stores, Couche-Tard is the largest convenience store operator in North America with 7,979 stores throughout Canada’s 10 provinces and 41 U.S. states at the end of January.
Furthermore, it operates 2,218 stores across Scandinavia, Poland, the Baltics, and Russia. There are also roughly 1,500 stores under the Circle K banner, operated by independent operators in 13 other countries and regions.
Couche-Tard opened its first store in Quebec in 1980. Since then, it has expanded by acquiring, integrating, and improving its existing product offerings and services.
Couche-Tard has successfully integrated more than 50 acquisitions and believes that it can continue to lead the consolidation of the fragmented industry.
Exco has advanced 258% in the last decade. Along with its dividends, it delivered an average annualized return of 13%, which was higher than the average annualized market returns in the same period. An investment of $10,000 in Exco 10 years ago would be $36,603 today.
In the past year, Exco’s share price has declined 17% and may be a good chance to buy on the dip when it temporarily underperforms the market.
Exco supplies innovative technologies servicing the die-cast, extrusion, and automotive industries. It serves customers in 18 manufacturing locations in 10 countries with operations based in Canada, the United States, Mexico, Colombia, Brazil, and Thailand.
The company has a rock-solid balance sheet, which is essentially debt free and generates consistently strong free cash flow.
By allocating a percentage of your portfolio in high-growth stocks, you can help boost your portfolio returns. Couche-Tard and Exco are strong candidates for that. They can be considered on dips of 15-30%.
Most recently, Couche-Tard dipped 17% from a high of $63 to $52 per share, and Exco dipped 20% from a high of $17 to $13.50 per share.
Although both companies offer a small dividend (Couche-Tard yields 0.5% and Exco yields 2.1%), they’ve been increasing their dividends at an ultra-high rate due to their high growth.
Couche-Tard has increased its dividend for six consecutive years at an average rate of more than 30% per year in the past five years. Exco has increased its dividend for 10 consecutive years at an average rate of more than 20% per year in the past five years.
How much you allocate to a basket of growth stocks depends on your comfort and your investment style. Some dividend-focused investors allocate 5-10% of their portfolios to growth stocks, and others allocate up to 20%.
For a $10,000 portfolio, if you get a 7% average annualized return, 10 years later, it’ll become $19,671. If you allocate 10% of that portfolio to high-growth stocks, from which you expect a 15% rate of return, 10 years later, you’ll amass $21,750. If you allocate 20%, instead, the end result will be $23,828.