A growth stock with a dividend can be a sign of a company with a strong competitive advantage.
Growth stocks are shares of companies that generate higher revenue, earnings and cash flow than their sector peers. Think of “unicorn” technology sector companies that create innovative products and services, such as Tesla Inc. (ticker: TSLA) and Shopify Inc. (SHOP). Growth stocks often possess high valuation metrics, such as elevated price-to-earnings, price-to-book and price-to-sales ratios. Compared to value stocks, growth stocks command higher prices because investors think they can sell them for more later if the growth continues. Most growth stocks do not pay dividends, as they prefer to reinvest retained earnings into research and development, or marketing and sales. However, some growth stocks generate so much cash that they do pay a dividend. A growth stock with a dividend can be a sign of a maturing, profitable company with a strong competitive advantage. Here are nine growth stocks that also pay dividends.
Apple Inc. (APPL)
As the largest constituent in the S&P 500, Apple currently commands a substantial market capitalization of $2.4 trillion. The company got to where it is thanks to a devoted customer base and a constantly evolving lineup of products, including the iPhone, iPad, Mac and App store. Apple continues to smash analyst expectations for revenues and earnings. In the trailing 12 months, Apple recorded a massive $25.7 billion in free cash flow, and currently has over $51 billion in total cash as of the most recent quarter. In terms of growth, Apple boasts an incredible 149% return on equity and 29.6% return on assets year over year as of March 2022. The stock currently yields 0.6%, but has a five-year dividend growth rate of 12.8%.
Microsoft Corp. (MFST)
Trailing Apple as the second-largest constituent in the S&P 500 is Microsoft, a longtime competitor in the computer, smartphone and app industries. With a market capitalization of $1.9 trillion, Microsoft grew to where it is thanks to well-known brands like Windows, Office 365, Edge web browser, LinkedIn, Surface Pro, OneDrive, Xbox, Halo and Gears of War. With a price-to-earnings ratio of 33.6, Microsoft is by no means cheap, but don’t let that deter you. The company has an outstanding trailing-12-month operating margin of 42.6%, with great growth in the form of 48.7% return on equity and 22.2% return on assets year on year as of March 2022. Like Apple, Microsoft is also flush with cash, recording $20 billion in year-over-year free cash flow as of March 2022. The stock currently yields 0.9%.
Visa Inc. (V)
When was the last time you paid for something in cash? In recent years, payment-processing companies like Visa have been an integral part of our digitalized economy. Visa’s payment network of terminals and credit cards helps enable purchases and transactions in over 200 countries, with 160 currencies supported. Thanks to its strong network effect, Visa maintains very strong profitability, with an operating margin of 67.4%. Visa is expected to release its next quarterly earnings report on July 26, with the Zacks consensus estimate at earnings of $1.74 per share, for a 16.8% year-over-year increase. Revenues are expected to hit $7 billion, up 14.8% from a year earlier. In terms of dividends, Visa currently yields 0.7%, but has recorded strong five-year dividend growth of 68.5%.
Costco Wholesale Corp. (COST)
For a great combination of quality, affordable prices, and excellent customer service, few retail outlets can beat the Costco model. By pioneering a membership subscription model, Costco was able to disrupt the low prices of traditional retail outlets like Walmart Inc. (WMT). For a small annual fee, Costco members can buy groceries, hardware, appliances, electronics, furniture, jewelry, furniture, fill up on cheap gas, get their tires changed, or even get an eye or hearing exam. Another perk? Costco’s perennially cheap and inflation-defying $1.50 hot-dog-and-drink combos. Despite inflation, sales rose in 2022, with Costco recording $1.35 billion in net income and delivering a great 31% return on equity as of April 2022. The stock currently yields 0.6%.
Mastercard Inc. (MA)
The payment card industry tends to be highly oligopolistic, being dominated by three megacap companies: Visa, American Express Co. (AXP), and Mastercard. Of the three, Mastercard is the closest competitor to Visa, with a similar market cap of $321 billion and strong brand name recognition. Mastercard has seen good success by partnering with various retail outlets, most notably Costco. Like Visa, Mastercard possesses very strong operating margins, at 55%, and also good growth in the form of a year-on-year 142% return on assets and 26.4% return on equity as of March 2022. Currently, the stock pays a small dividend yield of 0.6%, but has recorded five-year dividend growth of 67.1%.
BlackRock Inc. (BLK)
As one of the “Big Three” asset managers along with State Street and Vanguard, BlackRock currently commands an incredible $8.5 trillion in assets under management. The company boasts over 70 officers in 30 countries and is one of the premier money managers offering retirement plans, mutual funds and exchange-traded products for retail investors. It also serves institutional clients like pension funds, university endowments, governments and corporations. Although their second-quarter 2022 earnings report missed analyst expectations, reporting lower-than-expected earnings per share, revenue and net income, BlackRock repurchased $500 million worth of shares in that quarter, which is a sign of management confidence in the company. BlackRock currently pays a dividend yield of 2.8%.
Texas Instruments Inc. (TXN)
Texas Instruments might be best known for its brand of scientific calculators, but behind that is a $147 billion market-cap company behind much of the activity in the global semiconductor industry. The company designs and manufactures the chips and processors used by everyday electronic devices, including computers, printers, TVs, appliances, power tools, ATMs, medical equipment and vehicles. What’s notable about Texas Instruments is that despite being a growth stock in a hot technology sector industry, the company has continually paid out and raised dividends for 18 years. The current dividend yield stands at 2.7%, which is quite respectable. Supporting that is five-year average dividend growth of 76.6%.
S&P Global Inc. (SPGI)
Remember the S&P 500 Index? It turns out that the company that created it, S&P Global Inc. (SPGI), is publicly traded. Aside from creating and maintaining the S&P 500 index, S&P Global also provides other services, including analytics, stock ratings, data and other indexes to capital and commodity markets worldwide. The company has benefited immensely from the financialization of the economy, and saw strong tail winds from the growth in passive index investing over the last few decades. S&P Global also has a strong history of benefiting shareholders, with numerous stock repurchases in 2019 and 2020. Currently, the stock yields 0.9% with a five-year average dividend growth rate of 50%.
Starbucks Corp. (SBUX)
America’s favorite coffee franchise remains a heavy hitter in the consumer discretionary sector. Consumers can find a Starbucks store on virtually any street corner in America. With their strong brand recognition and constantly innovating operations, including mobile orders, customer rewards and new menu items, Starbucks has been successful at ensuring continued growth. Despite being a rather mature company, Starbucks recently grew quarterly revenues by 14.5% year over year and sits comfortably with $4 billion in cash on the balance sheet as of the most recent quarter. Despite recent controversies with unionizing stores, the company continues to remain profitable, with an above-average 15.4% operating margin compared to the rest of the food services industry. Starbucks pays a dividend yield of 2.3%, with five-year average growth of 50.5%.
9 growth stocks that also pay dividends:
— Apple Inc. (APPL)
— Microsoft Corp. (MFST)
— Visa Inc. (V)
— Costco Wholesale Corp. (COST)
— Mastercard Inc. (MA)
— BlackRock Inc. (BLK)
— Texas Instruments Inc. (TXN)
— S&P Global Inc. (SPGI)
— Starbucks Corp. (SBUX)
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9 Growth Stocks That Also Pay Dividends originally appeared on usnews.com
Update 07/25/22: This story was published at an earlier date and has been updated with new information.
