Key Points
- Two stocks with a dividend history also have a combination of compelling fundamentals and share price growth or potential.
- SLB's dividend history is impressive, and after a recent share decline, it may be poised to bounce back.
- DexCom is not yet a dividend player, but its impressive cash position and commitment to stock repurchases show its commitment to returning value to investors.
It's rare for an attractive dividend stock also to have growth potential. Most leading dividend distributors have moved past their high-growth days and have transitioned into stable, mature businesses, exhibiting fairly steady performance from quarter to quarter. While not the most exciting prospects, this stability is essential for investors relying on passive income through these distributions.
Companies with a unique combination of a Buy rating and a compelling dividend may draw interest from analysts when their fundamentals are strong, even if they've recently experienced a decline, suggesting they may bounce back in the future.
This is the case for one of the firms below. In other cases, firms may manage to participate in a significant rally while also serving the interests of dividend investors, as seen in the case of GE Aerospace (NYSE: GE). Finally, a third company is not yet a dividend payer but may be a target for speculative investors.
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Declines Related to Oil Bring SLB Into Value Territory
SLB (NYSE: SLB), also known as Schlumberger, has a nearly 100-year history providing services and technology to energy sector partners. Despite a top-line win and impressive liquidity highlighted in its latest earnings report, SLB has fallen this year along with the price of crude oil.
On the plus side, though, a 6% year-to-date (YTD) decline for SLB shares compared to a 16% improvement for the S&P 500 overall over the same period means that SLB is looking increasingly attractive as an undervalued play.
One of SLB's primary appeals to investors is its dividend, which yields a compelling 3.16% and maintains a steady payout ratio of 44.02%. The dividend is unlikely to change, particularly given the company's $1.1 billion in free cash flow last quarter alone. SLB also draws investors with its share repurchase plans, including $114 million of share repurchases in the third quarter.
With strong seasonal demand likely on the horizon and other potential boosts from OPEC+ and low global inventories, among other factors, there is a good chance that the price of oil could rise again in the near term.
If it does, analysts are prepared for SLB to get a significant boost. Sixteen out of 21 recommend SLB as a Buy, expecting a consensus price target of $51.28 per share, or about 42% above current levels.
GE's Strong Performance Is Compelling, and Dividend May Support Even as Valuation Concerns Linger
The aerospace arm of General Electric has been growing at a rapid pace—recent returns of more than 80% YTD highlight its profit and revenue expansion, the company's recent increase to full-year guidance across multiple metrics, and the strong demand for its Flight Deck model. The firm has been able to improve its operations thanks to easing constraints in its supply chain.
The biggest question for GE is whether it will be able to sustain a rally when its valuation is already quite high, with a P/E ratio above 40. Analysts can't resist the company's strong performance history, with 15 out of 17 still calling GE shares a Buy. Although its near-term share price potential is a bit more uncertain, investors may still be persuaded to take a chance on GE, thanks to its dividend.
With a yield of 0.47%, GE is not a go-to dividend stock; however, passive income from stable distributions (thanks to a healthy payout ratio of 19.23%) could help smooth over any short-term price turbulence.
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A Prime Target for Future Dividend Payments
With a share price decline of 22% YTD, medical device firm DexCom Inc. (NASDAQ: DXCM) may follow a similar trajectory to SLB above. The maker of continuous glucose monitoring (CGM) systems for diabetic patients beat analyst predictions for both EPS and revenue in the latest quarter, as sales surged by 22% year-over-year (YOY) thanks to strong momentum in the United States and a growing international presence.
However, scrap rates and freight concerns have pressured the company's gross margins, which may have given investors pause in recent months.
DexCom's potential remains robust, however, as the firm's balance sheet is strong—the company has about $3.3 billion in cash, which it will use to repurchase shares and settle approximately $1.2 billion of convertible notes. In terms of products and pipeline, DexCom's recent launch of its over-the-counter CGM Stelo will expose it to a new market of patients with diabetes who are not on insulin.
DexCom is not currently a dividend payer, but its strong cash position and history of share repurchases make it a prime candidate to initiate distributions at some point in the future. Analysts also see further growth in DexCom's future, with 20 out of 26 rating it a Buy, and the firm has 46% upside potential.
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