When it comes to investing, getting the right balance between growth and income can be difficult to achieve. Part of the reason for that is many investors have a preference for one or the other, which can lead to portfolios being skewed towards more cyclical, higher risk companies, or towards high-yielding but slower growing stocks.
However, finding a balance between the two can mean that the performance of a portfolio is relatively impressive during booms and also during more difficult periods, with it being able to generate a decent income as well as offer generous capital gain potential in the long run.
With this in mind, two stocks that seem to complement each other and could make for a great combination within a portfolio are Telstra Corporation Ltd (ASX: TLS) and Domino's Pizza Enterprises Ltd. (ASX: DMP). They are both high-quality stocks and have excellent track records of strong performance, with Telstra being an obvious income prospect and Domino's offering stunning growth potential.
For example, Telstra currently yields a fully franked 4.7%, which is slightly ahead of the ASX's yield of 4.5%. And, while it has a rather disappointing track record of dividend growth, with them having risen at an annualised rate of just 1% in the last five years, Telstra is expected to increase shareholder payouts by 3.6% per annum during the next two years. As a result, Telstra's dividends should rise at a faster rate than inflation even if further cuts to interest rates cause a spike in inflation over the medium term.
Meanwhile, Domino's offers superb growth prospects, with its bottom line expected to rise at an annualised rate of 28.4% during the next two years. Part of the reason for such a bright growth profile is the expected diversification of Domino's products, with it set to offer more than just pizzas on its menu as it attempts to take on other fast food companies so as to grab an even larger share of the fast food market. Part of its focus will be across Asia, where there is rising demand for more convenience foods and, with Domino's having increased its bottom line by over 20% per annum in the last five years, it has the track record to deliver on its ambitious growth targets.
Of course, Telstra also has its own growth prospects, with a move into e-healthcare and a push to generate a higher proportion of revenue from Asia having the potential to deliver increased earnings, which bodes well for the sustainability of its dividends. And, with Domino's expected to increase dividends per share by over 70% during the next two years, its forward yield of 1.6% means that, over the medium term, it could become a relatively appealing income stock, too.
However, their main strengths lie in providing superb income prospects and exceptional growth potential. And, when combined, they appear to offer a superb balance between the two, thereby making Telstra and Domino's the perfect partnership for Foolish portfolios.
