Dividends are a great way of boosting your returns, but all too often they are prioritised at the expense of capital growth.
That has been particularly the case recently given the low interest rate environment. With the nation's official cash rate stuck at just 2.5%, investors have flocked towards the high-yielding stocks of the big four banks, the supermarket giants and various other blue chip corporations en masse.
However, with each of these companies becoming increasingly expensive (and their yields falling as a result), investors who are following this strategy are at risk of recognising sub-par investment returns over the coming years while being exposed to little growth.
Those investors would be much better off focusing on stocks that offer both attributes. That is, a solid dividend yield as well as strong growth potential. And the good news is, even with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) trading at a six-year high, there are still plenty of decent opportunities to take advantage of.
Here are three companies which you could consider adding to your portfolio today…
- Amcor Limited (ASX: AMC) is a global packaging company that offers both yield and growth opportunities. While it has grown its profitability strongly over the last five years, financial services company UBS believes 10%+ growth in earnings is achievable over the next three years. Amcor is trading on a projected P/E ratio of 17 while it is expected to distribute 45 cents per share (cps) in fiscal year 2015, giving it a yield of 4.4%.
- Super Retail Group Limited (ASX: SUL), which is the parent of companies like Rebel Sport, BCF and Supercheap Auto, has had a disastrous run so far this year. But that could soon change with strong growth anticipated as consumer confidence improves. In fact, some estimates suggest earnings could grow at a compound annual growth rate of 11.9% over the next two years. The stock is trading on a P/E ratio of 17 and is expected to yield a grossed up 5.9% in fiscal year 2015.
- Rio Tinto Limited (ASX: RIO) could also be a good option for investors hoping to gain exposure to Australia's resources sector. Although this could be a risky play given the miner's exposure to tumbling commodity prices like iron ore and copper, Rio Tinto is also heavily focused on improving production rates and reducing costs which should help improve its margins and earnings moving forward. With shares trading at $65.09 and on a multiple of 12.7, the stock is also tipped to offer a grossed up yield of 5.3% next year.
Another high-yielding growth stock you need to know about
Amcor, Super Retail Group and Rio Tinto are all exemplary businesses that offer both a solid yield as well as strong growth prospects. While each of them would make for decent buys right now, I have another small-cap ASX stock I think you also need to take a look at…
