Investors looking for income should also factor growth and value into their stock selection criteria. This strategy offers a growing dividend and price appreciation through earnings growth while purchasing the stock at a very reasonable price. This screen found three stocks with 5-year annual dividend growth greater than 10% with projected earnings growth of 10%. This creates a great scenario for investors to get both growth and income in the coming years.
But investors should also factor the current purchase price into the stock selection process. I have included the price to sales ratio to determine the valuation of each stock. In general, a price to sales ratio below 1.5 is considered a reasonable value. However, when that ratio falls below 0.75, the stock has an extremely cheap valuation and a great buying price.
The two stocks discussed below all trade at an extremely low price to sales ratio while still offering both income and earnings growth above 10%. Both stocks have more than doubled the price performance of the S&P 500 year to date.
Kroger Co. (NYSE:KR) has a current dividend yield of 1.58% with a 5-year annual dividend growth rate of 12.89%. Kroger is projected to grow earnings by 11.38% next year. The stock trades at a price to sales ratio of only 0.22.
Total sales increased 4.6% to $22.7 billion in the second quarter compared with $21.7 billion for the same period last year. Total sales, excluding fuel, increased 3.9% in the second quarter over the same period last year.
Net earnings for the second quarter totaled $317 million, or $0.60 per share. Net earnings for the second quarter last year were $279 million, or $0.51 per diluted share.
Kroger's strong financial position has allowed the company to return more than $920 million to shareholders through share buybacks and dividends over the last four quarters. During the second quarter, Kroger repurchased 2.4 million common shares for a total investment of $90 million.
Based on second quarter results, the company maintained its net earnings guidance range of $2.73 to $2.80 per diluted share for fiscal 2013. This is consistent with the company's long-term earnings per share growth rate guidance of 8%-11%, plus a growing dividend.
The Company is projected to grow earnings by 11.4% to $3.12 in 2015. For 2016, Kroger is projected to increase EPS by 10.5% to $3.45.
Kroger has an equity summary score (see note below) of 8.4 out of 10 for a Bullish outlook. Thomson Reuters consensus has a buy rating of 2.3 on the stock. Kroger has a 12-month price target of $51.00.
Cardinal Health (NYSE:CAH) has a current dividend yield of 1.88% with a 5-year annual dividend growth rate of 16.66%. Cardinal Health is projected to grow earnings by 10.44% next year. The stock trades at a price to sales ratio of only 0.22.
Cardinal continues to rebound from several contractual losses to competitors in the past year. Cardinal lost its contract with pharmacy-benefits manager Express Scripts Holding Co. (NASDAQ:ESRX) last year to rival AmerisourceBergen Corp. (NYSE:ABC). Cardinal was dealt another blow in March when Walgreen Co. (NYSE:WAG) and European drug giant Alliance Boots agreed to get their branded and generic pharmaceutical products from AmerisourceBergen.
Still, Cardinal Health reported a profit of $339 million, or $0.99 per share, up from $271 million, or $0.79 per share, a year earlier. The latest period included a tax benefit of $0.18. Excluding tax benefits, acquisition-related charges and other items, adjusted earnings from continuing operations were up at $1.10 from $0.81.
Analysts polled by Thomson Reuters recently expected per-share earnings of $0.86 and revenue of $22.76 billion. For the recently started fiscal year, the company raised its per-share earnings estimate to $3.62 to $3.72, from its previous estimate for per-share profit of $3.45 to $3.60.
The drug wholesaler's board also authorized an additional $1 billion in stock repurchases. The new authorization is in addition to the company's existing stock repurchase plan, which has $350 million remaining.
Cardinal is projected to have earnings of $3.69 per share in the current year. The Company is projected to grow earnings by 10.4% to $4.07 in 2015. For 2016, Cardinal is projected to increase EPS by 11.3% to $4.53.
Cardinal Health has an equity summary score of 7.5 out of 10 for a Bullish outlook. Thomson Reuters consensus has a buy rating of 1.9 on the stock. Cardinal Health has a 12-month price target of $72.00.
Note: The Equity Summary Score provides a consolidated view of the ratings from a number of independent research providers on Fidelity.com. It uses the providers' relative, historical recommendation performance along with other factors to give you an aggregate, accuracy-weighted indication of the independent research firms' stock sentiment.