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. (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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.