The 3 Best Dividend Growth Stocks You Never Heard Of – Yet : FHCO, TAL, QSII

Cash is still king but it doesn’t hurt to add some growth to balance out long-term returns. Take advantage of the higher growth potential in smaller companies but look for ones with sustainable payouts.

How the Dividend-Growth tradeoff works

After two stock market meltdowns in less than 15 years, investors have learned that a dividend today is worth much more than the prospect for higher prices in the future. That constant cash return is worth more than just money in your pocket, it means that your total return is cushioned when the market tanks and a quarter of the stock price is wiped out.

But the allure of big money gains is still strong and even the most generous dividend payouts can’t compare to growth stories like Oracle (NYSE: ORCL) and its almost 19,000% return in the ten years to the 2000 peak.

Normally, these high-growth companies are not going to pay a dividend. They keep all cash flow for reinvestment in the company for the promise of a higher stock price. Most dividend-paying stocks, especially those with yields above 2%, are from large companies in mature markets. Growth opportunities are fewer and cash flows are more stable so the company isn’t really sacrificing as much when it pays out a dividend.  (more)

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