Not everything in life is split between white and black. More things exist in the “grey” area than they do in two extremes. And this phenomenon can be seen in several other areas, including the stock market, where many investors believe that growth and generous dividend stocks are mutually exclusive.
Although there aren’t many stocks that simultaneously offer a mouth-watering yield and robust growth prospects, you might be able to find a healthy combination of both if your lower your expectations a bit. And for maximum impact, try buying these stocks when they dip, so you can lock in a high yield while capitalizing on the stock’s value proposition.
An energy aristocrat
There has been a lot of speculation around the energy sector and its future, now that the world is actively moving away from fossil fuel. There is no denying that it’s not going away anytime in the near future, but the long-term future of the sector might be bleak. However, there are still companies like Pembina Pipeline (TSX:PPL)(NYSE:PBA) that might be able to offer a decent (and sustainable) combination of growth and dividends.
Even before the pandemic, Pembina was a slow grower. It grew its market value by about 50% in four years, but its growth has been remarkably consistent. It has been gradually going up (at its characteristic pace) in the last 12 months, which means it’s still far away from its pre-crash valuation, and you can lock in its generous 6.9% yield.
A banking aristocrat
Canadian banks are stable, good dividend payers, and some of them also offer slow but consistent capital growth. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) might not be top of the bunch, but its long-term growth history and future prospects are worth considering. The bank has a 10-year CAGR of almost 9%, which, combined with its 4.7% yield (highest among the Big Five right now), makes it a decent mixture of dividends and growth.
It’s the fourth-oldest dividend payer in the country and has been issuing dividends since 1868, and it has been consecutively growing them for the last decade. For the last 15 years, it has been growing its dividends at a CAGR of 4.3%. It has good credit ratings and a stable outlook from three out of four rating agencies.
An aristocratic REIT
Granite REIT (TSX:GRT.UN) is currently going through a rough patch. The REIT, which grew almost 100% between 2016 and 2020 in market value, has been static for the last eight years. But it hasn’t decimated the growth history, and the REIT still offers a decent 10-year CAGR of 16.8%. And if it starts growing at its pre-crash rate again, it can be a powerful addition to your portfolio.
One benefit that its static valuation offers is that you can lock in the 3.9% yield. Once value growth picks up the pace, the yield might slowly turn from juicy to dry. The REIT has a rock-solid balance sheet, and its gross profit grew quite consistently all through 2020 without taking a significant dip.
Companies that offer both capital growth and dividends might allow you to diversify your portfolio more effectively (i.e., without diluting your returns too much by spreading your equity spread too thin). If you seek diversification through several separate dividend and growth stocks, you might compromise on overall growth a bit more than you would have ideally wanted, but the stocks that offer both prevent that.
Speaking of stocks that offer a decent combination of growth and dividends...
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST and PEMBINA PIPELINE CORPORATION.