In this article, we discuss the 10 growth stocks with decent dividend yields.
The debates around growth and value investing in the finance world tend to center around capital gains and dividend payouts, with both sides scrambling to outline how one may be better than the other over the short and long term. It is no secret that growth stocks have outperformed the value offerings in the past few years, evidenced by the presence of five tech giants on the top of the benchmark S&P 500 Index. However, as inflation fears rise on the back of virus uncertainty and supply chain problems, value stocks are making a comeback.
This might not be a very big problem for growth investors who have grown comfortable with their portfolios. In fact, for many who are looking for the best of the both worlds, there are more than a few growth stocks on the market that pay a healthy dividend. Some of the growth stocks with decent dividend yields according to hedge funds include Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Intel Corporation (NASDAQ:INTC), among others discussed in detail below.
Our Methodology
We chose growth stocks that also pay dividends. These stocks are useful for investors looking to buy stocks for total returns (dividends + stock price appreciation). Yields of the following stocks are not that high, but their dividends combined with stock price appreciation would provide a perfect combination to make profits for long-term investors.
The hedge fund sentiment around each stock was calculated using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Growth Stocks with Decent Dividend Yields
10. BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 20
Forward Dividend Yield: 1.54%
BWX Technologies, Inc. (NYSE:BWXT) operates in the nuclear industry, a fast-growing sector in the context of clean energy debates. It makes and sells nuclear components like advanced nuclear reactors and also provides tooling delivery systems. In August, the firm announced that it had secured a contract worth CA$40 million to supply four state-of-the-art heat exchangers to Bruce Power. The company will begin fabrication work on the exchangers later this year.
Truist analyst Michael Ciarmoli has a Buy rating on BWX Technologies, Inc. (NYSE:BWXT) stock with a price target of $70. The analyst believes the firm has a “predictable” business model in the defense industry poised to benefit from increased spending in the coming months.
Among the hedge funds being tracked by Insider Monkey, Wisconsin-based investment firm Cardinal Capital is a leading shareholder in BWX Technologies, Inc. (NYSE:BWXT) with 1.7 million shares worth more than $99 million.
Just like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Intel Corporation (NASDAQ:INTC), BWX Technologies, Inc. (NYSE:BWXT) is one of the stocks on the radar of elite investors.
In its Q3 2021 investor letter, Upslope Capital Management, an asset management firm, highlighted a few stocks and BWX Technologies, Inc. (NYSE:BWXT) was one of them. Here is what the fund said:
“BWX Technologies designs and produces nuclear reactors, components and fuel, primarily for the U.S. Government and Navy (and, more recently, NASA). The company is the sole supplier for its Naval products (~75% of sales), which are used for the power and propulsion of all of the Navy’s aircraft carriers and submarines. With nuclear subs (aka “boomers”) forming the backbone of the “Sea” leg of the Nuclear Triad, BWX plays a vital and sensitive role supporting the national security of the United States. Of course, BWX is exceptionally well-positioned should the saber-rattling vis-à-vis China continue. The recent Aukus security pact, which may eventually benefit BWX, illustrates the urgent and strategic importance of maintaining a modern nuclear-powered sub fleet.
Even if relations with China stabilize (and hopefully they do), BWX shares seem poised to outperform. After four years of essentially going nowhere, the stock currently trades near the low-end of its historical valuation range – just over 13x EBITDA vs. typical range of 13-16x. With a literal monopoly position (albeit against a sole purchaser), BWX has historically generated modest top-line growth with attractive returns on capital (mid-20s). Given the stability of the business and its competitive position, as well as the current geopolitical backdrop, current valuation seems very reasonable.
Importantly, beginning in 2017 BWX embarked on an aggressive capex expansion program, eventually tripling capex as a percentage of sales. In addition to ramping capacity to support Navy growth, BWX spent heavily developing its medical/radioisotope business. While not yet concluded, there is light at the end of the tunnel that should bode well for shares. 2020 appears to have been the capex peak and BWX seems on track for more normalized capex by the end of 2022. This should lead to de-levering the balance sheet (from an already-reasonable 3x gross debt/EBITDA), a potential acceleration in capital returned to shareholders, and/or the prospect of increased M&A.
Lastly, while BWX’s core today is its Naval operations, there is long-term optionality from the other units (~25% of revenue), which are currently focused on Canadian nuclear power (fuel and components), medical, space (NASA) power, and microreactors. BWX faces little competition, if any, across many of these areas. A sizable portion (>50%) of the recent capex program was also invested in a new Mo-99/Tc99 radioisotope (essentially a cleaner, more cost efficient alternative to current products on market – used in cardiology, oncology, neurology, and diagnostics) production line that should lead to an acceleration in growth outside of Naval operations.
Major risk factors for BWX include the possibility of physical accidents, production defects and resulting liabilities, as well as cost pressures due to strained government budgets and/or rising input costs, some leverage (~2x net), and ESG flow headwinds (not fundamental, of course, but a reality).”
9. Amdocs Limited (NASDAQ:DOX)
Number of Hedge Fund Holders: 29
Forward Dividend Yield: 1.90%
Amdocs Limited (NASDAQ:DOX) provides software and related services to the communications industry. Orange, a French telecom provider, recently announced that it had selected Amdocs to provide business support systems as a 5G-based cloud experiment goes live across Europe. The network, powered by artificial intelligence, will run for two years and aims to reach hundreds of business users by the end of this year.
Amdocs Limited (NASDAQ:DOX), despite operating as a growth firm, pays a healthy and regular dividend to shareholders. In August, the company declared a quarterly dividend of $0.36 per share, in line with previous.
At the end of the second quarter of 2021, 29 hedge funds in the database of Insider Monkey held stakes worth $796 million in Amdocs Limited (NASDAQ:DOX), down from 32 the preceding quarter worth $716 million.
In its Q2 2021 investor letter, Palm Valley Capital Management, an asset management firm, highlighted a few stocks and Amdocs Limited (NASDAQ:DOX) was one of them. Here is what the fund said:
“The top contributors to the Fund’s second quarter returns (includes) Amdocs (ticker: DOX). Amdocs’ stock has fully recovered from the erroneous, widely disseminated anonymous short seller report issued on the final day of the first quarter. Amdocs’ organic growth is the strongest it has been in years, and the company is delivering excellent free cash flow.”
8. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 41
Forward Dividend Yield: 5.43%
International Business Machines Corporation (NYSE:IBM) provides integrated solutions and services that include hardware, software, and cloud solutions. The company, based in New York, recently declared a quarterly dividend of $1.64 per share, in line with previous. IBM has recently separated the IT services management business, which now trades as Kyndryl Holdings on exchanges in the US. The CEO of IBM, Arvind Krishna, told CNBC last week that the spinoff allows the parent company to focus on a “growth-centric portfolio”.
International Business Machines Corporation (NYSE:IBM) recently announced that it had signed a partnership with McDonald’s, the fast food giant, to develop voice recognition solutions based on artificial intelligence as labor shortages haunt the food industry.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in International Business Machines Corporation (NYSE:IBM) with 3.4 million shares worth more than $508 million.
In its Q2 2020 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and International Business Machines Corporation (NYSE:IBM) was one of them. Here is what the fund said:
“AT&T and IBM exited the portfolio as they no longer met the quality criteria for inclusion with AT&T exceeding the debt limit and IBM falling out due to deteriorating long-term fundamental stability.”
7. Amgen Inc. (NASDAQ:AMGN)
Number of Hedge Fund Holders: 53
Forward Dividend Yield: 3.28%
Amgen Inc. (NASDAQ:AMGN) is a California-based biotechnology company that focuses on the development of therapeutics in the areas of cardiovascular disease, nephrology, and neuroscience. The firm recently announced that it would be investing $365 million for a new final product assembly and packaging site in Ohio. Amgen has solid fundamentals, beating market expectations on earnings per share and revenue in the third quarter.
Piper Sandler analyst Christopher Raymond has an Overweight rating on Amgen Inc. (NASDAQ:AMGN) stock with a price target of $255. The analyst touted the potential of pipeline drugs of the firm in a bullish investor released last month.
At the end of the second quarter of 2021, 53 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in Amgen Inc. (NASDAQ:AMGN), up from 47 in the previous quarter worth $1 billion.
In its Q4 2020 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Amgen Inc. (NASDAQ:AMGN) was one of them. Here is what the fund said:
“One of the biggest additions to the portfolio in the rebalance was Amgen Inc. The company underperformed the S&P 500 Index last quarter even though its free cash flow estimates increased. Because the portfolio’s weighting methodology is linked to free cash flow, position sizes increased to reflect improving fundamentals relative to prices, and the more attractive valuations that result.”
6. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 55
Forward Dividend Yield: 1.35%
Oracle Corporation (NYSE:ORCL) markets systems software and related services. The firm has made a name for itself in the cloud software application market, building an impressive business that serves some of the top clients around the world. The company announced last month that it would be opening up 14 cloud regions across the world to support the demand for Oracle Cloud Services and meet triple-digit growth targets.
On September 14, investment advisory Monness Crespi kept a Buy rating on Oracle Corporation (NYSE:ORCL) stock and raised the price target to $115 from $113, appreciating the solid earnings results of the firm in the second quarter.
At the end of the second quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $2.8 billion in Oracle Corporation (NYSE:ORCL), up from 52 in the preceding quarter worth $2.8 billion.
Along with Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Intel Corporation (NASDAQ:INTC), Oracle Corporation (NYSE:ORCL) is one of the stocks that hedge funds are buying.
Here is what Ariel Investments has to say about Oracle Corporation (NYSE:ORCL) in its Q1 2021 investor letter:
“A temporary factor might be a downturn in the high-yield bond market driving up LBO financing costs for the decline in 2021 GAAP revenue for Oracle Corporation (ORCL) due to a change in accounting methods. In all these examples, stock prices were driven well-below our calculations of intrinsic value. We invested in each company with good outcomes. Later, we will offer instances when this strategy is not successful.”
5. Cisco Systems, Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 60
Forward Dividend Yield: 2.59%
Cisco Systems, Inc. (NASDAQ:CSCO) makes and sells internet networking products. MKM Partners analyst Fahad Najam recently maintained a Buy rating on the stock and raised the price target to $69 from $60, backing the firm to beat estimates on growth and revenue in the coming months. In September, the firm declared a quarterly dividend of $0.37 per share, in line with previous.
Chuck Robbins , the CEO of Cisco Systems, Inc. (NASDAQ:CSCO), recently said that the company will rebuild around next-gen technology solutions like the cloud, slowly transitioning to a software-as-a-service firm on the lines of Microsoft Corporation.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $4.2 billion in Cisco Systems, Inc. (NASDAQ:CSCO), up from 59 in the previous quarter worth $5.1 billion.
4. Activision Blizzard, Inc. (NASDAQ:ATVI)
Number of Hedge Fund Holders: 78
Forward Dividend Yield: 0.69%
Activision Blizzard, Inc. (NASDAQ:ATVI) markets interactive entertainment content that includes video games for computers and mobiles. The company recently posted earnings for the third quarter, reporting earnings per share of $0.72, beating estimates by $0.02. The revenue over the period was $1.88 billion, up 6.2% year-on-year. The firm recently announced a new version of Call of Duty, a popular video game, in time for the holiday season.
However, Activision Blizzard, Inc. (NASDAQ:ATVI) has also announced delays in the release of new versions of two key games, Overwatch and Diablo. Oppenheimer analyst Andrew Uerkwitz, who has an Outperform rating on the shares with a $85 target, believes “talent retention” is a problem for the company.
At the end of the second quarter of 2021, 78 hedge funds in the database of Insider Monkey held stakes worth $3.5 billion in Activision Blizzard, Inc. (NASDAQ:ATVI), up from 76 in the preceding quarter worth $3.7 billion.
In its Q1 2021 investor letter, Cooper Investors, an asset management firm, highlighted a few stocks and Activision Blizzard, Inc. (NASDAQ:ATVI) was one of them. Here is what the fund said:
“The portfolio established a position in video game publisher Activision Blizzard. As a watchlist company we have followed Activision for several years. As a reminder the role of the watchlist is to allow us to focus on a select group of companies where we seek to observe important signals around either value latency, industry trends or management behaviour that portend attractive investment propositions.
Technology can often play a disruptive role in content, however video games are a clear beneficiary of technology, both in terms of more immersive and realistic gaming experiences as well as the monetisation opportunities this creates.
In order to benefit from these trends, video game publishers must be owners of unique IP. Activision Blizzard fits this bill perfectly boasting a portfolio which includes franchises such as Call of Duty, World of Warcraft and Diablo just to name a few.
The business is run by CEO Bobby Kotick, who together with Chairman Brian Kelly purchased the foundation assets for the company for US$400k in the early 1990s. Today Activision has a market capitalisation of over US$70bn. Over the last few years Bobby and his management team have refocused resources onto their best IP, with the goal of capitalising on the aforementioned industry tailwinds.
We saw the benefits of this in 2020 with the release of Call of Duty Mobile and Free-to-Play versions (with in game micro transactions) complimenting the traditional core console game. Engagement increased materially and due to the very favourable economics of content publishing, Operating Income more than doubled for the Call of Duty Franchise. Even adjusting for the impact of lockdowns, this is a phenomenal outcome.
Activision has 3-4 key pieces of IP with which they plan to repeat this playbook over the next couple of years. If they can replicate the success of Call of Duty, even in part, we see material upside to the free cash flow power of the business. Further, revenue sources are broadening which will move the profile away from a traditional lumpy annual release cycle of the old video game model towards one of a more recurring nature. This will transition Activision from a publishing to a services business, likely attracting a higher multiple than the current mid-low 20x FCF which is broadly in line with the market. To summarise, we see significant value latency and a pathway to double digit returns over the medium term.”
3. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 78
Forward Dividend Yield: 2.76%
Intel Corporation (NASDAQ:INTC) makes and sells essential technologies that are used in smart devices around the world. Amid a global rise in demand for chips, a key product of the firm, and supply chain constraints, semiconductor prices have skyrocketed in recent months, benefiting Intel, which has invested the increased revenues into a major plan to become the leader of the chip industry.
As it ramps up spending in growth initiatives, Intel Corporation (NASDAQ:INTC) insiders have been busy buying the stock. In late October, four directors at the firm bought nearly 40,000 shares of the firm.
At the end of the second quarter of 2021, 78 hedge funds in the database of Insider Monkey held stakes worth $6.7 billion in Intel Corporation (NASDAQ:INTC), down from 83 in the previous quarter worth $7.6 billion.
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 138
Forward Dividend Yield: 0.58%
Apple Inc. (NASDAQ:AAPL) features on our list of growth stocks with decent yields because the firm is one of the largest growth firms in the world with a business model that is likely to churn out a steady stream of revenue for years to come. As such, the dividend payouts of the firm are likely to be regular and might even grow with the passage of time, a trait not normally associated with growth offerings.
Apple Inc. (NASDAQ:AAPL) offers the best of both worlds, solid dividends and reliable growth. Legendary investors like Warren Buffett also value the stock a great deal. The firm has a market capitalization of more than $2.4 trillion.
At the end of the second quarter of 2021, 138 hedge funds in the database of Insider Monkey held stakes worth $145 billion in Apple Inc. (NASDAQ:AAPL), up from 127 in the preceding quarter worth $131 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 238
Forward Dividend Yield: 0.74%
Microsoft Corporation (NASDAQ:MSFT) is another hedge fund favorite that operates in the growth domain but also pays a healthy dividend. The company has successfully transitioned to a subscription-based business model and made key purchases in the software sector to reinvent itself around the cloud in the past few years. However, it has consistently paid dividends during the time, a remarkable feat for a company in transition.
Deutsche Bank analyst Brad Zelnick recently initiated coverage of Microsoft Corporation (NASDAQ:MSFT) stock with a Buy rating and a price target of $390, describing the firm as “the gold standard” for software stocks in a bullish investor note.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT) with 24.8 million shares worth more than $6.7 billion.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
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Disclosure. None. 10 Growth Stocks with Decent Dividend Yields is originally published on Insider Monkey.
