An investor might choose to buy stocks for both capital appreciation and dividends for several reasons. Aiming to strike a balance between potential long-term growth and income, here are five companies our contract writers own in their portfolios…
Computacenter
What it does: Computacenter is a value-added IT reseller, providing hardware and software solutions plus expert services to clients.
By Roland Head. I reckon Computacenter (LSE: CCC) is a top performer in a sector where demand is likely to continue growing for the foreseeable future.
The company’s scale means it’s one of a handful of businesses able to service the largest corporate and public sector clients. More than 50% of FTSE 100 companies are customers, for example.
Meanwhile, the group’s steady expansion in the US has seen it become a trusted supplier to hyperscalers – large cloud and AI operators.
One risk with this business is that it operates on slim margins and relies on huge turnover to deliver attractive profits. This needs skilled management.
However, long-time CEO Mike Norris has an excellent record. Computacenter’s operating profit has risen from £77m to £266m since 2014.
The company’s dividend has risen from 19.8p to 70.7p per share over the same period. That’s an average increase of 13% per year.
I plan to continue holding this stock.
Roland Head owns shares in Computacenter.
Games Workshop
What it does: Games Workshop designs, manufacturers and distributes miniature figures and games.
By Paul Summers. Games Workshop (LSE: GAW) offers a compelling mix of growth and passive income, in my view. It’s probably my favourite listed UK company!
On the growth front, the company has already penned a deal with Amazon to turn its Warhammer 40k world into films and a television series. These could draw in new fans and boost sales. A new manufacturing facility – due to open in 2026 – should help to meet this demand.
But this company is no slouch when it comes to dividends either. The stock yields a very respectable 4%, as I type.
One challenge it does face is continuing to satisfy the desires of its older customers (who have far more disposable income) while ensuring that it isn’t left behind as gaming becomes increasingly more immersive.
Still, a rock-solid balance sheet suggests to me that Games Workshop should be able to withstand any temporary wobbles in trading.
Paul Summers owns shares in Games Workshop.
Greggs
What it does: Greggs is the UK’s leading food-on-the-go retailer.
By Ben McPoland. One stock I own for both growth and dividends is Greggs (LSE:GRG). Revenue and earnings growth is being fuelled by expansion of the store estate, which stood at 2,559 at the end of September. That’s set to rise to 3,000 shops in the next few years.
Sales slowed in the third quarter compared to the first half, with cash-strapped consumers displaying a bit of caution. I’ll be keeping an eye on this in case trading weakens further.
Yet Greggs still reported a 10.6% rise in overall sales in the quarter, with like-for-like sales up 6.5% year to date. This was driven by extended opening hours, new menu launches, and rising digital sales on Uber Eats and Just Eat.
As for the dividend, the prospective yield for 2025 is 2.4%. While that’s unlikely to get the hearts of income investors racing, the annual payout has been growing at 11% in recent years. So I think this stock makes more sense the longer I own it from a dividend growth perspective.
The autumn menu is now available and includes the all-day breakfast baguette. I may treat myself to one when the baker pays me its October dividend.
Ben McPoland owns shares in Greggs and Uber Technologies.
Reckitt
What it does: A major manufacturer of health, hygiene, and nutrition products to regions around the world.
By Mark David Hartley. British health and nutrition retailer Reckitt (LSE: RKT) had a tough year. In February, a US court ordered it to pay $60m in damages when an infant’s death was blamed on its Enfamil baby formula. The share price collapsed 15% on the news and a further 13% as fears of further lawsuits emerged. Reckitt denies any wrongdoing and is challenging the verdict – but the damage is done.
Now in recovery mode, Reckitt is trying to return to business as usual.
Financials are strong and analysts watching the stock are in good agreement that the price will rise 26% in the coming 12 months. Hopefully, that will help reduce its worryingly high £8.2bn of debt. The shares are undervalued by 43% and the forward price-to-earnings (P/E) ratio is 13.7 – well below the industry average. Plus, it has a 4.3% yield and an excellent track record of increasing payments.
Mark David Hartley owns shares in Reckitt.
Sage
What it does: Sage is a technology company that specialises in accounting and payroll software for small and mid-sized businesses.
By Edward Sheldon, CFA. One of my favourite stocks for both growth and dividends is FTSE 100 software company Sage (LSE: SGE).
As a software company, Sage is well positioned to benefit from the digital revolution. Looking ahead, I expect its share price to rise as more businesses adopt its products, and its revenues and earnings rise.
I also expect to receive regular dividends from the company going forward. Sage is a very reliable dividend payer and it has increased its payout every year for over a decade now (the yield is about 2% currently).
I’ll point out that Sage is not a cheap stock. As I write this, it sports a price-to-earnings (P/E) ratio of about 25.
I see that as a reasonable valuation for this company, however, as it has an excellent track record when it comes to generating wealth for investors (the share price has nearly tripled over the last 10 years). Assuming revenue and earnings growth don’t slow, I think the stock can continue to generate attractive returns for long-term investors like myself.
Edward Sheldon owns shares in Sage
This post was originally published on Motley Fool
