Dividend Stocks

The Dividend Sweet Spot: 3 Balanced Dividend Stocks

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Investors can choose from several dividend investing strategies, including the two most popular ones: growth and income. A dividend growth investing strategy focuses on a stock’s long-term appreciation potential. These stocks can keep up with the market or even outperform it, but they often have low yields. It’s common to see dividend growth stocks with yields below 1%.

Dividend income stocks offer high yields but very little upside. Many telecom companies have high yields but don’t offer much upside beyond 6% yields. However, there are a few stocks that combine the best of both worlds. It’s possible to find stocks with yields above 1%, annualized dividend growth rates above 10% and market-beating returns. These three picks check all of the boxes.

American Express (AXP)

an American Express (AXP) credit card sticking out of someone's pocket

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American Express (NYSE:AXP) stock has more than doubled over the past five years, putting its returns higher than the S&P 500. The stock is also off to a strong start with a 26% year-to-date gain. Shares trade at a 20 P/E ratio and come with a 1.18% yield.

The credit and debit card issuer has maintained a double-digit dividend growth rate for many years. American Express recently upped the ante with a 17% dividend hike. The quarterly dividend payout now comes to $0.70 per share.

Revenue and net income growth continue to delight as people use their cards more often. Revenue increased by 11% year-over-year while profits were up by 34% year-over-year in the first quarter of 2024. American Express has a multi-year growth plan that forecasts 9% to 11% year-over-year revenue growth and EPS growth in the mid-teens beyond 2026. Those projections suggest that profit margins will expand and that the stock has more room to run.

Broadcom (AVGO)

broadcom (AVGO) logo outside office building

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Broadcom (NASDAQ:AVGO) is a top AI beneficiary due to its top-tier chips. Broadcom’s semiconductor technology powers up many everyday devices, and it’s been a boon for investors. The stock is up by 30% year-to-date and has soared by 459% over the past five years.

While growth is good for long-term investors, it comes at a cost for dividend investors. As Broadcom’s price continues to march higher, its yield becomes smaller. Even with those incredible gains, Broadcom still has a very respectable 1.49% yield. Furthermore, Broadcom has an annualized dividend growth rate of 17.49% over the past five years. 

The semiconductor giant can march higher if it announces a stock split. While a stock split does not increase a company’s value, it brings more attention to the stock. Options traders will also have an easier time trading the stock which will drum up volatility. Broadcom has not announced a stock split, but there is some speculation that a split can be on the way. A stock split makes more sense since Nvidia (NASDAQ:NVDA) recently announced its own and Broadcom shares trade above $1,400 apiece.

Texas Roadhouse (TXRH)

An outside and closeup view of a Texas Roadhouse, Inc. (TXRH) sign

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Restaurant stocks have been taking off in recent months. That boom has resulted in many lofty valuations that will be difficult for these stocks to maintain in the future. However, investors can get a better margin of safety and a respectable yield with Texas Roadhouse (NASDAQ:TXRH)

The American steakhouse chain has a 34 P/E ratio and a 1.45% yield. The company has a good dividend growth program, which includes a recent hike from $0.55 per share to $0.61 per share. That’s a 10.9% year-over-year increase for the quarterly payout. 

Texas Roadhouse is up by 41% year-to-date and has more than tripled over the past five years. It only has an $11 billion market cap and is expanding with company restaurants and franchises. The company’s restaurant count is up by 7% year-over-year, going from 704 to 753. Texas Roadhouse added 12 new locations this quarter (9 company restaurants and 3 franchises). The company only opened seven new locations in Q1 2023. Continued acceleration and solid financials point to more potential gains.

On this date of publication, Marc Guberti held a long position in AVGO and TXRH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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