Investors generally fall into two camps: Those with an interest in growth stocks and those who favor income or dividend stocks. Growth stocks tend to work best for younger investors working toward significant capital appreciation, that can invest for the long-term and ride out the short-term volatility that often occurs. Conversely, income/dividend stocks tend to work best for older investors looking to get steady income from their investments and looking to avoid instability on the share-price front. They will trade more modest stock price returns if their holding has those characteristics.
But what if you could find an investment that can provide the best of both camps? Well, that would be ideal. And there are some dividend-paying stocks that have the potential to produce significant long-term share price gains. Three of them — BlackRock (BLK 0.79%), JPMorgan Chase (JPM -1.10%), and Taiwan Semiconductor Manufacturing (TSM 2.21%) — are among the best of this breed. Let’s find out a bit more about these three stocks.
You may be more familiar with BlackRock than you realize. This is the company behind the iShares family of exchange-traded funds. It also manages several conventional mutual funds. It’s one of the world’s biggest investment managers, in fact, boasting more than $9 trillion worth of assets under management as of the close of the second quarter.
The stock itself has been a poor performer of late, down 28.3% from November’s high. Investors understandably fear that economic weakness and the impact it could have on the stock market could prove problematic for BlackRock. Like all other fund managers, its fiscal fate is linked to equity values. But not quite in the way many people assume.
Fund companies’ revenue typically isn’t performance-based. Investment managers are paid a percentage of the assets they’re managing. While a marketwide pullback shrinks asset bases and consequently shrinks these companies’ revenues, even after the market’s big declines this year, most asset bases are still pretty well intact. It’s a business model that’s well suited for generating revenue streams that reliably support healthy dividend payments. The key to growth is perpetually bringing more customers into the fold. In this vein, BlackRock’s asset base has more than doubled from less than $4 trillion just 10 years back, which has helped drive the stock price up by 300% over that stretch. As the economy recovers look for BlackRock to as well.
Last quarter’s dividend of $4.88 per share, by the way, is also more than three times bigger than the $1.50 payout the company dished out every quarter back in 2012. The dividend is yielding a competitive 2.6% right now and is well supported with by free cash flow that allows for a 35% payout ratio.
2. JPMorgan Chase
It’s another finance industry giant, but JPMorgan Chase is distinctly different from BlackRock. While JPMorgan does manage investments on behalf of some customers, wealth management is only a minor part of its business. Conventional banking, investment banking, credit cards, and brokerage are all part of its repertoire. As measured by assets, JPMorgan Chase is the nation’s biggest bank.
Admittedly, right now doesn’t feel like a great time to be buying any bank stocks. Interest rates are still at historically low levels despite the Fed’s back-to-back 75-basis-point hikes of the federal funds rate, so the profit margins on loans remain at relatively low levels. And, with two consecutive quarters’ worth of GDP contraction, the U.S. may already be in the midst of a recession that will stifle banks’ businesses.
On the flip side, all of those risks and then some may already be priced into JPMorgan shares. The stock is down more than 30% from its January high, setting the stage for a rebound that could eventually double its current price.
Such strong gains have certainly happened before. JPMorgan shares were trading at twice their 2009 low mere months after the economy came out of the subprime mortgage meltdown, and it only took a couple of years for them to double from the low they hit during 2016’s lull. By late 2021, JPMorgan shares had rallied by more than 100% from the low point they touched in early 2020. And even after this year’s selloff, the stock’s up by more than 200% over the past 10 years.
The point is that although the bank’s stock regularly takes its lumps, it also quickly bounces back in a big way. Investors who have bought on dips like the current one have been particularly well rewarded.
Newcomers this time around will also be rewarded with an annual dividend that at the current stock price yields 3.5%. And for the record, the quarterly payout has more than tripled over the course of the past decade.
3. Taiwan Semiconductor Manufacturing
Finally, add Taiwan Semiconductor Manufacturing (TSMC) to your list of dividend-paying growth stocks that could double your money in a decade or less. At the current share price, its dividend yield of just under 2.3% isn’t exactly thrilling, but there’s far more to the story.
It’s not a household name, but the odds are good that you or someone in your household benefits from the company’s efforts. As the name suggests, TSMC makes semiconductors and a variety of other chips and components for smartphones, personal computers, and other electronics. But the average consumer won’t hear much about it because it makes these components under contract for the better-known businesses that designed them. Some of TSMC’s top customers include Apple, Advanced Micro Devices, and Qualcomm.
The current chip shortage is proving a short-term boon for the giant foundry. Tech companies are scrambling for components wherever they can get them, at almost any price. That’s why TSMC’s revenue is projected to grow by more than 30% this year.
In the long run, though, the semiconductor shortage could pose a risk to third-party manufacturers like TSMC. Looking to avoid these sorts of supply problems in the future, chipmakers such as Intel and Samsung are spending billions of dollars to expand their in-house chip production capabilities. These investments diminish the need for contract manufacturers.
There are a few points that investors may not fully appreciate about this shift, however. Not only will it take years for these new facilities to reach their full production potential, but demand growth for chips is still far outpacing production capacity expansion. McKinsey estimates the semiconductor market will grow from last year’s $590 billion to more than $1 trillion in 2030.
Oh, and TSMC’s dividend yield? It may be modest, but management has a history of boosting its payout a lot. The current quarterly payout is more than three times what it was dishing out a decade ago.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long March 2023 $120 calls on Apple, short January 2023 $57.50 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.