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.
Source: Getty Images
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.
