I just published an article on several low-yield high dividend-growth stocks that "always" look expensive yet continue to outperform the market by a wide margin.
In light of macroeconomic challenges, I put them on my list to buy if new opportunities present themselves. Unlike certain high-yield opportunities, I believe that bear markets are the perfect opportunity to add the stocks I discuss in this article.
Moreover, I discuss reasons that make low-yielding dividend growth stocks attractive investments, even for yield-seeking investors.
- Potential for (outperforming) capital appreciation: High-dividend growth stocks tend to have a strong track record of generating long-term capital appreciation. By investing in companies that are expected to grow their earnings and cash flows over time, investors may see their investments increase in value over time, in addition to receiving dividends. Moreover, these companies often come with lower volatility.
- Lower payout ratios: Low payout ratios suggest that companies have more room to reinvest earnings in their businesses or pay down debt, which can help support long-term growth prospects. This also protects investors against dividend cuts during recessions. However, on the flip side, yields are low, which means these stocks aren't part of a typical investors' income stream.
- Diversification: Investing in low-yielding high-dividend growth stocks can provide diversification benefits to an investor's portfolio. High-yield stocks are often concentrated in certain mature industries like utilities, energy, finance, and industrials. There is nothing wrong with that, but in some cases, investors benefit from diversifying into faster-growth sectors - even if it means lowering the average portfolio yield.
- Potential for dividend growth: Low payout ratios and high (potential) business growth could mean that the yield-on-cost after buying quickly rises.
- Attractive valuations: In a bear market, valuations tend to be lower, which can create buying opportunities for investors. By purchasing low-yielding high-dividend growth stocks with low payout ratios at a discount, investors may be able to capture long-term growth potential and generate income at a relatively attractive price.
Here's the full article: