Think you have to choose between income and growth? Think again, because it is possible to find companies that are growing, and are already paying fully franked dividends. These three ethical equities are all on my watchlist because they are great companies, and I have owned all three of them at some point in time.
One of favourite dividend-paying growth stocks is 1300 Smiles (ASX: ONT). The company owns and operates 25 dental practices, and also offers management services to dentists who can retain ownership of their practice if they wish. The Managing Director, Dr Daryl Holmes, appears to have a lot of integrity, proudly supports charity and owns over 60% of the company, which he founded.
The company boasts impressive earnings growth since listing in 2005, although potential investors should note that the Chronic Disease Dental Scheme (CDDS) ended on 1 December 2012, and this will almost certainly have a negative impact on revenue for the current half.
Over the next few years, I believe the company will make up any reduction of profit resulting from the closure of the CDDS. The balance sheet is strong, and management is making a serious attempt to make dental services more affordable for customers. That should have positive ramifications for investors and society alike. It's hard to forecast the yield, but I expect it to be over 3% for FY 2013 at current prices.
Amcom (ASX: AMM) is another growing income stock I like, and is positioned to benefit from the increasing importance of the internet to many businesses. The company owns a fibre optic network, and provides cloud-based and communication services to businesses and government.
Earnings have grown steadily since 2008 but forecast PE for FY 2013 is over 20, which means investors are paying for future growth. At current prices, I expect the dividend yield for the current year to be about 3%, with good growth prospects beyond that. One director sold shares at recent highs, while two others were quick to pick up shares after the recent share price drop.
Energy Action (ASX: EAX) is in the energy efficiency business and pays regular dividends to shareholders. Energy Action provides energy monitoring and retrofitting to public and private organisations, and has even partnered with First Solar (Nasdaq: FSLR) to install solar panels for one of its clients. More importantly, the company owns the Australian Energy Exchange where energy retailers bid to provide the best energy prices to customers.
The Australian Energy Exchange benefits from the network effect (to an extent) because as more customers are attracted, the service becomes more valuable to electricity retailers, and vice versa. The exchange provides an edge for the company and allows the cross selling of other services aimed at reducing power bills. I sold my shares in Energy Action at $3.25, but they are once again trading below $3, and may soon reach compelling levels. At current prices I expect the yield for the current year to be about 2.5%.
Foolish takeaway
These three companies are at the top of my watchlist. They are all socially positive, have plenty of room to grow profits, and are increasing dividends sustainably. Investors get to choose when they buy, so use your time to research thoroughly and try to buy at a good price!
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More reading
- 3 companies with dividend yields above 6%
- 1300 Smiles Limited: A stock to make you smile
- Should you by My Net Fone?
Motley Fool contributor Claude Walker has an indirect financial interest in Energy Action through a managed fund. Join him on Twitter @claudedwalker.
