3 Stocks With Dividends and Growth Potential

Big dividends are too often seen as the lure of crusty old companies with meager growth prospects, and too many fast-growing firms pay nothing. Given a choice between a dividend check and a growth stock, I’d probably take the former: History suggests dividends and not share price gains make up the bulk of long-term returns. But I recently screened for companies that sit somewhere in the middle, companies that offer cash payments and growth potential.

One-year certificates of deposit pay an average of 1.8% at the moment. The three companies below all pay more, and each is expected to increase its sales by at least 8% this year, versus no sales growth for the average company in the S&P 500 index.

Dividend Yield: 2.7%
2009 Projected Sales Growth: 8%

Charlotte, N.C.-based snack maker Lance (LNCE), founded in 1913, has long specialized in cracker sandwiches filled with peanut butter or cheese spread. The company bought Cape Cod potato chips in 1999 but struggled with stagnant sales in the early part of this decade. An irreverent radio ad campaign launched in 2003 around the phrase “I Got Lance in My Pants,” along with a short-lived invitation to customers to film and submit their own commercials featuring the slogan, somehow failed to ignite demand. However, over the past four years, the company has appointed new managers, tapped shipper UPS (UPS) for advice on delivery routes, overhauled its technology systems and bought a few new brands: nut specialist Tom’s Foods in 2005, cookie maker Archway last year and Stella D’Oro, another cookie concern, in October. In recent years, operating margins have crept from four cents of each sales dollar to five, and in recent quarters, to six. There’s room for further improvement; the industry average is eight cents on the dollar. Lance is still a small company, with less than $1 billion in yearly sales, and its brands have mostly regional (but not yet national) popularity, so opportunities for sales gains abound. The company hasn’t yet perfected the art of manipulating Wall Street’s forecasts to easily beatable levels, so once in a while it disappoints, as in its third quarter. But sales are still growing steadily and shares seem reasonably priced.

Dividend Yield: 2.2%
Projected 2009 Sales Growth: 11%

When Otho O. Owens and G. Gilmer Minor launched their drug wholesaling business in the early 1880s, germs had only recently been found to cause disease, Louis Pasteur was crafting the world’s first vaccines and Sigmund Freud, then in his 20s, was touting cocaine as a remedy for everything from asthma to drug addiction. Today Owens & Minor (OMI) is focused on medical and surgical supplies, distributing 180,000 products from 1,200 makers to more than 4,000 hospitals, clinics and other customers. Sales are expected to top $8 billion this year. In the company’s third quarter, sales increased 14%. Management attributes 60% of that to the purchase a year ago of The Burrows Company, a small Chicago medical supplies distributor, and the rest of the sales increase to demand from existing customers. Shares at 16 times earnings are priced at about a 15% discount to the S&P 500 index.

Dividend Yield: 2.7%
Projected Fiscal 2009 (Ends Jan. 31) Sales Growth: 13%

A Nebraska-based seller of pricey (but not crazy-pricey) jeans and other apparel, Buckle (BKE) this year provided shareholders with an 8.7% dividend yield, counting a special payment made in October. Sales at the company’s longstanding stores increased 5.1% year-over-year in September, which is muted compared with a 19.7% improvement posted a year earlier but superb compared with most other clothing sellers this year. Buckle’s sales of women’s clothes are growing nicely, while men’s clothes, especially shirts, are not. It’s not clear if that’s because of more job losses among men than women over the past year or simply the result of a lack of interest, but management is experimenting with merchandise changes to fix the problem. Shares seem priced for modest expectations, at about 11 times earnings.