5 Dividend Stocks That Can Deliver Income AND Growth

CVS Health

• Market value: $69.4 billion
• Dividend yield: 2.9%
• CVS Health (CVS (opens in new tab), $68.76) is the largest pharmacy operator in the U.S. and has increasingly turned its locations into small general stores. However, lesser-known is the fact that CVS also operates a large pharmacy benefits business that serves more than 1 million customers annually and profitably provides Medicare Part D prescription drug plans.

CVS now is trying to add another arm onto its business. The pharmacy agreed to a $69 billion buyout deal with Aetna (AET (opens in new tab)) – the No. 3 health insurance provider in the U.S. – in late 2017. The belief is that CVS is trying to fend of Amazon.com (AMZN (opens in new tab)), which appears poised to challenge several health care industries via different initiatives. Analysts at Wells Fargo are hopeful, expecting the merger between Aetna and CVS to result in $750 million in annual revenue and cost benefits by year two.

The company’s core pharmacy business tends to keep churning in good times and bad, which has helped keep profits steady enough to fund a dividend since 1993. Better still, that payout has increased every year since 2004, making it a Dividend Achiever.

Las Vegas Sands

• Market value: $57.7 billion
• Dividend yield: 3.9%
• Las Vegas Sands (LVS (opens in new tab), $75.06) is well-known for its casino operations here in the United States, but it also owns and operates casinos in Singapore and the Chinese province of Macau.

The company recently raised its quarterly dividend by a couple cents per share to 75 cents, or $3 annually, which comes to a yield of nearly 4% more than twice as nice as the S&P 500. That came alongside a September-quarter earnings report that saw profits grow 11% per share. More good news from that report? “Our (Macau) operations produced its best quarter since quarter four 2014 with adjusted EBITDA reaching $652 million.”

Prospects in China look even better after a Feb. 1 report that showed Macau gaming revenue jump 36% year-over-year in January – its best such improvement in four years. That could mean LVS’ earnings could grow more than the 7% analysts currently expect for 2018.

Meanwhile, analysts at Morgan Stanley say strong growth in Macau and Singapore could provide additional cash flow and provide a catalyst to increase the dividend further.

McDonald’s

• Market value: $128.1 billion
• Dividend yield: 2.4%
• McDonald’s (MCD (opens in new tab), $158.64), with more than 37,000 restaurants worldwide, is among the best-known fast-food chains on the planet. As such, it’s fairly saturated, and analysts even are projecting a single-digit decline in revenues for the current fiscal year.

That said, McDonald’s still may be an opportunity for share gains and dividends. As the company shifts to an almost entirely franchised business model, it should enjoy the benefits of collecting lucrative franchise royalties and fees, which have few associated costs. That’s in large part why, even though McDonald’s simply doesn’t have much more room for expansion, analysts expect profits to grow more than 14% in 2018.

McDonald’s is a Dividend Aristocrat that sports a modest current yield. However, its consistent dividend growth – MCD has paid out higher distributions each year for more than four decades – means yield on cost keeps getting better for anyone holding shares. The yield also is on the low side right now in part because of a 25% jump in shares over the past 12 months.

Bank of America/Merrill Lynch analysts suggest that McDonald’s shares “have appeal as a total-return (dividends + share appreciation) vehicle, including a long history of dividend increases.”

PepsiCo

• Market value: $155.9 billion
• Dividend yield: 2.9%
• PepsiCo (PEP (opens in new tab), $108.00) is a global food and beverage company whose well-known brands include the namesake Pepsi-Cola, as well as Frito-Lay, Gatorade, Quaker and Tropicana.

After a few years of declines in the top line, PepsiCo is back to growing revenues, and in fact, analysts expect sales to improve by low single digits for the next couple of years. Also, PepsiCo is a strong cash-flow generator, and it puts that cash flow to good use – once in a while in acquisitions such as 2016’s deal for KeVita, but also via raising its dividend and repurchasing shares.

For the uninitiated: Share repurchases are a powerful catalyst for share appreciation because they take shares off the market and help juice the earnings-per-share number. In its fourth-quarter earnings report in February, PepsiCo announced a new $15 billion stock repurchase program spanning from July 1, 2018, through June 30, 2021, that will replace an expiring $12 billion program dating back to July 1, 2015.

PepsiCo also announced another increase to its dividend – the 46th consecutive such increase, which means it too is a Dividend Aristocrat.

Right now, analysts at Bank of America/Merrill Lynch believe shares’ current valuation fails to reflect management’s efforts to accelerate growth in PepsiCo’s core beverage business. Translation: There's more room for upside in shares.

Verizon

• Market value: $197.4 billion
• Dividend yield: 4.9%
• Verizon (VZ (opens in new tab), $47.96) is a leading telecommunications company, and one of the reasons why investors tend to associate telecom stocks with big, stable dividends. VZ has improved its dividend every year since 2006, and has averaged modest 3% dividend growth over the past five years – but the overall yield is a very immodest 5% that’s nearly triple that of the S&P 500.

There’s little growth left in the saturated U.S. telecom market, and companies such as T-Mobile (TMUS (opens in new tab)) and Sprint (S (opens in new tab)) are waging price wars to try to squeeze the bottom lines at the two-headed giant of Verizon and AT&T (T (opens in new tab)). Nonetheless, analysts still see low-single-digit top-line expansion in Verizon’s near-term future. And because Verizon is adept at turning even meager growth into profits, those same analysts are looking for roughly 6% in annual earnings improvement over the next half-decade.

Analysts at Wells Fargo suggest Verizon will experience “strengthening free cash flow,” which is a catalyst for dividend growth. Also, industry experts are excited about the prospects of Verizon's eventual rollout of 5G technology.