5 Cheap Growth Stocks With Attractive Dividend Yields

These cheap growth-at-a-reasonable-price (GARP) stocks have huge upside potential with attractive yields

When considering stocks to highlight today, I wanted to find five growth stocks that not only pay attractive dividends but also have above-average upside prospects. But to be interesting for this list, these growth stocks also have to be reasonably cheap using fundamental metrics. The idea is that you get the best of both worlds — a cheap purchase points and high expected returns.

For example, the stocks I’ve honed in on here have expected earnings and/or free cash flow for the next year but still sell for less than sixteen to seventeen times earnings. In addition, the dividend yields are higher than average at 3% to 5%.

So, in a sense, you get both a growth stock and a relatively cheap stock.  In fact, there is a term for this: GARP stocks (Growth At a Reasonable Price). You can Google the term “GARP stocks” and see what I mean.

GARP Stocks, Their Price Targets and Upside Potential

GARP stocks are in a sort of mid-point between the growth and value stock investment philosophies. They are cheap but their earnings are growing fast. They also pay attractive dividend yields.

The growth stocks also have good upside prospects. I measured the value of each stock using three different methods and then average them. The first is the price target based on its average dividend yield.

A second target price was derived by using the historical price-to-earnings ratio and applying it to forward earnings per share.

The last method uses comparable ratios of peers and applies those measures to derive the comp-based target price. I then averaged all three methods. The upside potential of all of these growth stocks is between 12% and 62%. As a group, they average about 38% upside potential.

The five cheap growth stocks I finally settled on are:

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Looking For Dividend Growth? Here Are 5 Solid Picks

Investors are once again in search for consistent and safe income in a near-zero interest environment, a series of drastic dividend cuts and rising U.S.-China tension. Nothing is better than dividend investing at this time. This is because investors can enjoy rising current income while anticipating capital appreciation irrespective of market conditions.

While there are several dividend stocks that could provide capital appreciation, honing in on stocks with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.

Strong Dividend Growth Indicates Further Dividend Hike

Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these offer downside protection with their consistent increase in payouts.

Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.

Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.

As a result, picking dividend growth stocks appear as winning strategies when some other parameters are also included.

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5 Great Dividend Growth Stocks for Income and Safety

In a near-zero interest environment and amid a series of drastic dividend cuts, investors are seeking consistent and safe income thereby driving the appeal for dividend investing. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market.

In fact, investors are zeroing in on stocks that not only offer dividends but also consistently increase their payout. Stocks that have a strong history of dividend growth as opposed to those that offer high yields form a healthy portfolio with more scope for capital appreciation.

Dividend Growth Strategy

Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these offer downside protection with their consistent increase in payouts.

Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.

Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.

As a result, picking dividend growth stocks appear as winning strategies when some other parameters are also included.

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7 Safe Dividend Stocks With Big Dividend Growth Potential

Dividend growth might have been an investing staple of the past decade or so. But these past few months, dividend stocks have been pinching their pennies.

Dozens of companies have announced dividend cuts or suspensions since the start of March. That includes more than 5% of the S&P 500 Index. In fact, in April, more S&P 500 companies reduced or killed off their dividends than announced payout raises.

Investors – especially those nearing or in retirement – who are banking on regular cash income have been backed into a corner. The number of dividend stocks that are able to sustain their payouts is thinning, and those that can briskly grow those distributions over time are an even smaller group. (Remember: Income growth is vital; inflation erodes the spending power of stagnant dividends over time.)

So where you can you look for dividend growth? Consider theDIVCON system from exchange-traded fund provider Reality Shares. DIVCON uses a five-tier rating, from 1 to 5, to gauge companies' dividend health. A DIVCON 5 rating indicates not just a healthy dividend, but a high likelihood of dividend growth. DIVCON 1 dividend stocks, on the other hand, are the likeliest to cut or suspend their payouts.

Within each DIVCON rating is a composite score based on factors including free cash flow-to-dividends, profit growth, buybacks as a percentage of dividends and more.

Here are seven safe dividend stocks with big dividend growth potential. Not only do these stocks boast the top DIVCON rating of 5, but they generate enough cash profits to pay their dividend several times over: a good indication that dividend growth will continue well into the future.

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