Editor’s Note: Related tickers: CoreSite Realty Corp (NYSE:COR), Medical Properties Trust, Inc. (NYSE:MPW), Houston Wire & Cable Company (NASDAQ:HWCC), Waddell & Reed Financial, Inc. (NYSE:WDR), Ingredion Inc (NYSE:INGR)
So far this year, value stocks have been leading the market’s rally—some in this market-beating strategy—while growth stocks have lagged somewhat behind. However, based on five-year total returns, growth stocks have outperformed value stocks. Moreover, over the past 12 months, some individual growth stocks outpaced value stocks by a significant margin.
Growth stocks have a potential to outperform as they are expected to produce revenue and earnings growth above the average for its industry or the overall market. Generally, growth-oriented companies tend to allocate more retained earnings toward business growth than towards dividends. Hence, growth stocks tend to pay smaller dividends. Still, there are some growth stocks that produce sufficient earnings and cash flow to balance growth with shareholder returns in the form of dividends. Below is a closer look at five growth-oriented small-cap stocks with dividend yields above 2% that can serve as a starting point in search for growth stocks with a potential to outperform. These stocks were among new picks in small-cap growth—such as these stocks—portfolios of mutual funds and ETFs in the first quarter of this year.
CoreSite
CoreSite Realty Corp (NYSE:COR), a provider of network-dense data center campuses and the CoreSite Realty Corp (NYSE:COR) Mesh, which enable interconnected communities of service providers and enterprises, achieved a total return of 54% over the past 12 months. This REIT is currently yielding 3.0% on a payout ratio of 61% of its 2013 FFO, based on the guidance midpoint. The company’s dividend has increased nearly 108%, cumulatively, since its initiation in December 2010. The company says it expects to continue increasing the dividend amount to that “required by REIT status and to retain excess cash flow for investment into development opportunities.”
Favorably positioned in a high demand, low supply market segment, CoreSite Realty Corp (NYSE:COR) operates 14 data centers (1.2 million square feet) and has 3 more data centers under development. This year, CoreSite Realty Corp (NYSE:COR) is expanding capacity by 311,000 net rentable square feet with a total capital investment of $195 million. In the first quarter, CoreSite grew its FFO per diluted share by 13.9% over the first quarter a year earlier. The company is expected to deliver FFO growth of 16.1% this year and 18.9% next year, according to a consensus of analysts’ FFO estimates. CoreSite Realty Corp (NYSE:COR) is trading at 20.0x its 2013 FFO estimate and 16.8x its 2014 FFO estimate.
Medical Properties Trust
Medical Properties Trust, Inc. (NYSE:MPW), a REIT that acquires, develops, invests in, and leases healthcare facilities, produced a total return of about 104% over the past 12 months. The REIT currently pays a dividend yield of 4.6% on a payout ratio of 73% of its 2013 FFO guidance. The company’s target payout ratio is equal-to-or-lower-than 80%. Medical Properties Trust, Inc. (NYSE:MPW)’ dividend has been kept fixed at 20 cents per share since late 2008.
Medical Properties Trust, Inc. (NYSE:MPW) specializes in acute-care, community and rehabilitation hospitals. Its outlook is particularly optimistic given the expected long-term demand from the aging population of Baby Boomers and the projected increases in healthcare spending. Last year, the company reported a 34% increase in total assets, a 49% gain in total revenues, and a 53% surge in normalized FFO. This year, Medical Properties expects its normalized FFO to grow 22% to $1.1 per share. Analysts expect Medical Properties Trust, Inc. (NYSE:MPW)’ normalized FFO to increase by another 13% next year. The advantage of this REIT’s operations, from the dividend income standpoint, is that hospitals offer predictable long-term cash flows that allow for a stable funding of dividends. Medical Properties Trust, Inc. (NYSE:MPW) is trading at 16.2x its 2013 normalized FFO projection.
Houston Wire & Cable
Houston Wire & Cable Company (NASDAQ:HWCC), one of the largest distributors of electrical wire and cable and related services in the U.S., produced a total return of 36.8% over the past 12 months. The company currently pays a dividend yield of 3.0% on a payout ratio of 43% of its current-year EPS estimate. Houston Wire & Cable Company (NASDAQ:HWCC)’s dividend grew at an annualized five-year CAGR of 3.5%. Recently, the company hiked its quarterly payout by 22.2%, as operating cash flow reached record levels in the first quarter.
Following a 2% adjusted sales growth in the previous quarter and an increase in gross margins, the company indicated “that sales and profitability (would) continue to slowly improve throughout the year.” Demand remains strong in both upstream and midstream oil and gas markets. As regards its EPS forecast, analysts project a 6.3% increase in Houston Wire & Cable Company (NASDAQ:HWCC)’s EPS this year, followed by a 15.7% growth next year. For the long-term, analysts forecast an EPS CAGR of 15% for the next five years. The stock is trading at 14.3x 2013 EPS estimate and 12.3x 2014 EPS estimate, which makes it also a value play.
