We are now halfway through the year and markets have again mirrored the superb gains of 2013. A gradual recovery in business confidence and historically low interest rates are diverting investor attention into assets such as stocks, where they are likely to reap higher returns.
With these low interest rates, income-hungry investors will only continue to demand dividend stocks, while ignoring the other side of the coin, growth. The diversification philosophy has been out for a great deal of time, but it has never been more important for investors to start diversifying their portfolios and gaining the best of both worlds. The following three companies are perfect for a nicely diversified portfolio offering both growth and dividends.
The healthcare equipment giant is undoubtedly positioned for bumper returns in the next few years. ResMed (ASX: RMD) provides a range of medical equipment to remedy sleep apnea, a condition affecting approximately 20% of the U.S. population. ResMed’s main demand driver is an increase in diagnosis rates which, given our ageing population and recent obesity problems, will act as a stimulant to diagnosis and generate long-term tailwinds to drive future earnings.
To me, ResMed looks like an excellent buy given that it trades at a modest forward price-to-earnings ratio of 19. While it only offers a dividend yield of 1.8%, its growth prospects unquestionably trump this weakness. ResMed is sure to make your diversified portfolio sizzle for the years to come.
The diversified financier is partnered with companies such as Harvey Norman, Flight Centre, Dick Smith and Officeworks. FlexiGroup (ASX: FXL) has undertaken some hefty restructuring charges to prepare itself for the longer term. It has lifted its IT investment until FY15 to improve approval process efficiencies and has made acquisitions its primary medium-term strategy, to offer a wider range of products in more locations.
FlexiGroup has had a wonderful track record of growing earnings. Yet, since the beginning of the year its share price has plummeted 30% as investors have become frightened by the slowdown in consumer confidence. However, FlexiGroup looks more than capable to grow both organically and through acquisition investments. The recent share price dip offers investors a great opening to take advantage of future price gains and its juicy 4.6% fully franked dividend yield.
While stocks in the mining services sector seem to have lost their touch following the slowdown of demand for materials, Leighton Holdings (ASX: LEI) is definitely an exception. The geographically diversified mining services provider has recently been awarded about $4 billion worth of contracts by the government to operate the North West Rail Link.
Complementing this are Leighton’s restructuring plans, which aim to efficiently reorganize its businesses to improve its cost position. The possibility of selling off some subsidiaries such as John Holland would also result in a significant reduction in its debt position.
Offering both an enormous dividend yield of 5.2% and proving to have continuing momentum within its business functions, Leighton is the final touch to our diversified portfolio. It may have gained some ground in the past year but at current prices I believe there is much more room for growth.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Aryan Norozi does not own shares in any of the companies mentioned in this article.