These 3 Big Stocks Have Growth and Dividends
Let's check out why it could pay to own these growth names.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Growth stocks typically do not pay dividends, as companies in the growth stage usually reinvest all cash flow into expanding the business.
All else being equal, the faster a company grows its earnings per share the greater the upside potential of the stock.
But some growth stocks do pay dividends to shareholders. In this article, we will discuss the prospects of three stocks which are likely to grow their earnings and dividends at a high rate going forward.
Don't Run Past Nike
Nike NKE is the world’s largest athletic footwear, apparel and equipment maker. The namesake is one of the most valuable brands in the world. Nike’s offerings focus on six categories: running, basketball, the Jordan brand, soccer, training, and sportswear. Nike also owns Converse.
Nike released results for the fourth quarter of fiscal 2024 in late June, revealing sales and direct sales decreased 2% and 8%, respectively, vs. the prior year’s quarter. (Nike’s fiscal year ends on May 31.) Digital sales declined 10%. Gross margin expanded from 43.6% to 44.7%, thanks to price hikes and lower freight costs and earnings-per-share grew 53%, from $0.66 to $1.01, exceeding the analysts’ consensus by $0.17, but only thanks to depressed earnings in the prior year’s period.
While it had previously provided guidance for essentially flat sales in the upcoming quarters, NKE now expects a mid-single digit decrease in revenues in fiscal 2025 due to challenging macroeconomic conditions.
Sustained margin improvement may prove hard in the future, but there is still ample room for revenue gains and share buybacks. China is likely to be the backbone of Nike’s growth story, as it remains a premier emerging market and a focus for Nike going forward.
Moreover, the relatively recent direct-to-consumer push of Nike is likely to prove a significant growth driver thanks to the shift of consumers toward online shopping. Nike raised its dividend by 9% last year. It has thus grown its dividend for the past 22 years, with an average annual growth rate of 12.3% during the last decade. We expect 11% average annual growth of earnings-per-share over the next five years.
Starbucks Should Keep Refilling Its Dividend
Starbucks SBUX began with a single store in Seattle’s Pike Place Market in 1971 and now has more than 38,000 stores worldwide. Nearly half of the stores are in the U.S. and nearly 20% of the stores are in China. The company operates under the namesake Starbucks brand, but also holds the Teavana, Evolution Fresh, and Ethos Water brands in its portfolio. The company generated $36 billion in annual revenue in fiscal 2023.
Starbucks reported financial results for the second quarter of fiscal year 2024 in April, revealing comparable store sales dipped 4% due to a 3% decline in North America and a 6% decline in international markets. (Starbucks fiscal year ends the Sunday closest to Sept. 30) Same-store sales in China fell 11%. Adjusted earnings-per-share dipped 8%, from $0.74 in the prior year’s quarter to $0.68.
Looking further out, Starbucks has a strong growth trajectory available over the long-term thanks to a growing U.S. and International store count, where the company is still in the early innings of expansion, coupled with pricing power. Nevertheless, due to the disappointing performance this year and the risk that results from new management, we have lowered our expected 5-year annual growth rate from 13% to 11%, to have a margin of safety.
Starbucks dominates the coffee retail industry. This allows the company to sell its coffee at premium prices and generate repeat business from customers. Still, the company is somewhat cyclical. Starbucks is currently offering a dividend yield of 3%.
Due to its decent payout ratio of 63%, its solid balance sheet and its promising growth prospects, the company is likely to keep raising its dividend meaningfully for many more years.
A Clear Option: Corning Inc.
Corning GLW operates in the information technology sector and has proven to be an innovative business that has stood the test of time. Corning has been the Corning Gorilla Glass of choice for your smart phone since 2007.
Today the company operates in five segments: Display Technologies, Optical Communications, Specialty Materials, Environmental Technologies, and Life Sciences. Corning reported first-quarter results in April, revealing $3.3 billion in core sales, down 3% from one year ago. Optical Communications – the largest revenue segment – saw sales decrease by 17% year-over-year. Display Technologies, Specialty Materials, and Environmental Technologies revenues rose 14%, 12% and 6%, respectively.
Life Sciences, and Hemlock and Emerging Growth Businesses declined 8% and 19%, respectively. Core net income equaled $330 million or $0.38 per share, compared to $350 million, or $0.41 per share, in the first quarter of 2023. The company saw its core gross margin increase 160 basis points year-over-year as a result of pricing actions and productivity improvements. Corning also provided a financial outlook for second-quarter 2024, expecting $3.4 billion in core sales and $0.42 to $0.46 in core EPS.
Corning has better growth prospects ahead. The company enjoys a leading position in fiber-optic cables, LCDs, screens, and specialty glass. Smart phone glass will continue to be an important part of the business but increased optical fiber usage from areas like the internet of things, 5G mobile technology and autonomous driving could be large demand drivers down the line.
We are forecasting 11% annual earnings growth over the intermediate term. We also expect some level of share repurchases to drive bottom line results over the long term. This should fuel continued dividend growth. GLW currently yields 2.4%.
At the time of publication, Ciura had no position in any security mentioned.