Did you know there are stocks that not only give you dividends but also grow your invested capital? While dividend stocks generate stable cash flows and give out a portion as dividend payout, growth stocks reinvest that cash and expand the business. However, some businesses reinvest a portion of their cash flow to grow the business and return some cash as dividends, growing the cash flow and stock price in the process.
Two dividend stocks that can give income and growth
The TSX Composite Index surged at a compound annual growth rate (CAGR) of 8.4% in the last five years. But these two dividend stocks can generate both income and growth in multiple ways and help you beat the market.
goeasy stock
goeasy (TSX:GSY) stock price has surged 147% in the last five years as the sub-prime lender increased its loan portfolio and added auto loans and other products to its pool. The company also increased its client base by adding more sub-prime borrowers while keeping its credit risk in check. A bigger loan portfolio converts to higher interest income. More loans convert to higher processing fees. As the cash flows increase, the company reinvests a portion of this cash and distributes a portion to shareholders as dividends. The company has increased its dividends by a CAGR of 26% in the last five years.
A decline in interest rates could ease borrowing costs and boost customer spending. The company forecasts it will grow its lending portfolio from $4.6 billion in FY24 to $6.2 billion by FY26 and increase its operating margin to 42% from 39% in FY24. This hints that dividend growth is here to stay.
Had you invested $5,000 in goeasy five years back, you would have purchased 72 shares that could have given a cumulative return of 273%. Your $5,000 would be worth $13,651 ($1,195 from dividend income and $7,456 from capital growth). The stock can still give market-beating returns in the next five years.
Telus stock
Telus (TSX:T) stock has dipped in the last two-and-a-half years amid the telecom sector’s woes. The rising cost of debt and significant leverage have affected its profits and increased its dividend-payout ratio beyond the 60-75% target range. However, the company continued to grow its quarterly dividend for the next year.
Now is the time to buy this stock and lock in a 7.4% annual yield that could grow by 6-7% in the coming years. Moreover, the stock could see a recovery in the coming five years as interest rate cuts reduce its finance costs and improve its profit margins. While Telus is not a growth stock, it is trading at the dip. The growth could come from a recovery rally.
