The capacity to grow as a business is essential for a stock to rise. A profitable, yet sluggishly slow company may not really advance in share price very much because investors don't see much upside in the future.
Growth, on the other hand, costs money. Investing in a business takes up extra funds and the payback period may be years in many cases. In the short term, earnings can take a hit from this development investing, but in the long run you have an expanding business with higher earnings and dividends.
Here are two companies that are building strong growth for the future that you can buy right now.
Telstra Corporation Ltd (ASX: TLS)
The telecom giant is drawing to the end of negotiations over the handover of the existing copper phone line infrastructure that the National Broadband Network (NBN) will be using across the country. The talks may be complete by the end of this year and ready for regulators to approve in 2015.
The expected $11.2 billion price tag will help fund Telstra's future growth and acquisitions over the coming years. Even before then, the company has already earmarked $1 billion of existing funds for investment in the Asia region where it is planning its next stage of growth.
Regional business enterprise services and developing cloud computing networks are the company's two top priorities to maintain solid growth over the next decade. This is a long-term investing play that could be quite good for dividend income investors. While you wait, the stock is paying shareholders a healthy 5.4% yield fully franked.
Retail Food Group Limited (ASX: RFG)
The food service and café chain operator has hit new highs over $5 recently and seems to be gaining traction in business development. In FY 2014, it saw double-digit revenue and net profit growth in the mid-to-high teens.
The company has a range of brands that you might see in many shopping centre food courts such as Donut King, Brumby's Bakery and Michel's Patisserie. It also has pizza takeaways like Pizza Capers and Crust. For FY 2015, it plans for new outlet growth to be around 150, similar to FY 2014. Currently, its total is around 1,435 outlets.
Consensus forecasts are for earnings to gain an average 14% annually over the next two years. The stock pays a hefty 4.8% fully franked yield. I like this kind of investment because you can understand the business easily and well-run food chains can grow for years across the country. Over the past five years the company has given shareholders a 19% average total return annually.
