3 Dividend Stocks With Surprising Growth Potential

Stocks to buy

Often, investors think about income and growth as binary choices. Either a company pays a large dividend yield, or it offers strong capital gains upside.

But investors don’t necessarily have to sacrifice one of these features to get the other. In fact, a surprising number of companies offer solid dividend yields and have considerable growth prospects going forward.

These are three leading dividend stocks yielding at least 3% today where the analyst consensus sees greater than 10% annual earnings per share growth going forward.

MetLife (MET)

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MetLife (NYSE:MET) is a leading life insurance company. It checks the usual boxes for a value stock, as it sells for less than nine times earnings and pays an attractive dividend.

But there’s a two-pronged growth story here as well. The first is from interest rates. Now that bonds finally pay a decent yield after years of low-interest rates, MetLife can generate much higher returns on its fixed-income portfolio, thus raising its overall profitability.

Also of note, the GLP-1 diabetes management and weight loss drugs could dramatically improve health outcomes. A May 2023 medical study found, “In sum, GLP‐1 RAs [receptor agonists] provide proven and potential benefits that may help people experience a prolonged healthy lifespan with reduced risk of serious and chronic aging‐related conditions.”

The upside here for MetLife could be dramatic. If people live longer lives, on average, the company will get to manage clients’ insurance premiums for a longer time before having to pay out on those policies. Additionally, MetLife offers disability insurance; the cost of making good on these policies should drop if the rate of diabetes and obesity declines. Anything that reverses the growth in America’s diabetes and obesity rates could make a tremendous impact on life insurers’ profitability.

Public Storage (PSA)

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Public Storage (NYSE:PSA) is the largest publicly traded self-storage real estate investment trust (REIT) in America.

Self-storage is an interesting asset class. Unlike most REITs, self-storage can thrive during times of economic uncertainty. In 2009, for example, self-storage firms including Public Storage outperformed most other REITs. That makes sense, as the rash of foreclosures and economic volatility caused many to move from one housing situation to another.

There’s a growth angle as well — demographics. The millennial generation is starting to settle down and form households in earnest. Moving and having kids are common drivers for renting a self-storage unit. Furthermore, hybrid work and e-commerce are both creating additional demand for storage space.

Despite Public Storage’s longer-term tailwinds, shares have tumbled over the past year. That is due to higher interest rates causing investors to dump defensive stocks. However, the firm’s fundamentals are as strong as ever, and with the recent share price drop, PSA stock now yields 4.5%.

Grupo Aeroportuario del Pacifico (PAC)

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Grupo Aeroportuario del Pacifico (NYSE:PAC) is a Mexican airport operator. It runs 12 airports, primarily in the Pacific region of Mexico along with two Jamaican airports. Key holdings include the airports for Guadalajara, Tijuana and the tourist destinations of Cabos and Puerto Vallarta, respectively.

The company’s IPO happened in the United States in 2006 and produced a total return, including dividends, of more than 625% since that point. Its success comes due to the attractive features of airports. While it is expensive to build an airport initially, it is a capital-light business once the facility is up and running. Airports tend to grow earnings at a high rate thanks to their ancillary services such as restaurants and concessions, hotels, advertising, car rentals and so on.

Mexico is a particular hotbed for airline traffic growth; it has been one of the world’s hottest tourist destinations in recent years due to more relaxed COVID-19 restrictions. And now, the Mexican manufacturing sector is booming as companies race to relocate parts of their supply chains to North America.

Pacifico has a variable dividend policy, as management aims to pay out nearly 100% of annual free cash flow to shareholders. In 2023, Pacifico paid out $6.35 per share in dividends, amounting to a starting 4.2% dividend yield today. And as-Pacifico’s free cash flow has historically grown at a double-digit rate, the dividend should grow at that speed as well.

On the date of publication, Ian Bezek held a long position in PAC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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