Growth Stocks or Income Stocks? Why, You Can Have Both

I couldn’t find it.

There were no vegetables on the zi-char menu. Or at least, that’s what I initially thought. And then, I finally found it. The vegetable dishes were labelled under “side orders.”

‘What an odd label to place your vegetables under,’ the thought ran through my head.

Growth stocks, income stocks

Some investors like a good growth story. Others may prefer the steady drip of dividends into their portfolio. And then, there are stocks that – like my vegetables above – do not quite fit nicely into either the growth bucket or the income bucket.

But just because a stock doesn’t fit, does not make it a bad company to own.

In a previous article, I spoke about my adventures in buying shares of Parkway Life REIT (SGX: C2PU) in early 2009 at 73 cents per unit. At the time of the purchase, the hospital and nursing home property owner offered a yield of 9.4% per unit, making it a good income candidate.

However, the returns I’ve enjoyed from the REIT through the years had come from capital appreciation as well.

As of yesterday, my units are worth over three times my purchase price (Parkway Life REIT closed at S$2.27 on Tuesday). Meanwhile, I have also collected 69 cents per unit in distributions from the REIT since my 2009 purchase. Said another way, I have benefitted from both dividends and growth in this instance.

Changing lanes

In mid-2010, I purchased shares of iPhone maker, Apple Inc. At the time, it had just released its latest device, the iPad. For me, Apple was a growth story for smartphones which was expanding fast.

The thesis seems to have played out well – Apple’s shares have risen by 195% since my purchase, on the back of a 327% spike in earnings per share since FY2010 (fiscal year ended 25 September 2010).

Meanwhile, Apple started issuing a dividend in FY2012. There was no dividend offered during my purchase.

Fast forward to today, and Apple’s shares are yielding around 5% on my cost basis. By all counts, I reckon that an income investor would be happy with that level of yield. More importantly, this also shows how a growth-story stock can mature into an income producing stock.

Foolish takeaway

Some stocks may not be easily pigeon-holed as growth stocks or income stocks.

As such, we may want to look beyond the labels and go into the heart of what makes for a good company since it is a good company that can ultimately deliver the growth or income that we so desire. (Sometimes, a good company can even do both, as we just saw with Apple.)

For some investors, a sign of a good company could be the presence of free cash flow, a healthy balance sheet, and a good recurring stream of revenue. There are other characteristics that point to a good company.

Meanwhile, an extra helping of vegetables can be beneficial for your own health too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Parkway Life REIT and Apple Inc.