Income investors consider a number of factors before buying a stock, such as the current dividend yield. But dividend yield should not be the only consideration for income investors. Buying stocks that have high total return potential can provide shareholders with capital gains from a rising share price, in addition to dividend income.

These 3 stocks not only pay dividends to shareholders, but also appear undervalued with future earnings growth potential. As a result, they all have expected total returns above 20% over the next five years.

Qualcomm Inc. (QCOM)

Qualcomm develops and sells integrated circuits for use in voice and data communications. The chip maker receives royalty payments for its patents used in devices that are on 3G and 4G networks.

Qualcomm continues to generate strong growth in 2022. In the most recent fiscal quarter, revenue was higher by 37.3% to $10.9 billion, which was $50 million more than expected. Adjusted earnings-per-share of $2.96 compared very favorably to $1.92 in the previous year and was $0.09 ahead of estimates. Qualcomm CDMA Technologies, or QCT, grew 45% to $9.4 billion.

The company has grown earnings-per-share at a rate of 6.6% per year over the last decade. An agreement with Apple and Huawei, a lower share count and leadership in 5G should allow the company to grow in the coming years. We also believe that demand for 3G/4G/5G headsets will increase.

The company is shareholder-friendly. In April Qualcomm increased its dividend by 10%, which was its 20^th consecutive year of dividend increases. Shares currently yield 2.6%. In addition, we view the stock as significantly undervalued, with a 2022 P/E of 9.5 compared with our fair value P/E of 16. Lastly, we expect 7% annual EPS growth for the company over the next five years. Total returns could reach 21% per year over the next five years as a result.

Yum China Holdings (YUMC)

Yum China Holdings, Inc. is the largest restaurant company in China, with more than 12,170 locations in 1,600 cities. The company’s restaurant holding includes KFC (8,510 stores), Pizza Hut (2,711), and other brands, including Taco Bell (949). As of the end of the first quarter of 2022, the company owned and operated 90% of its restaurants (10% franchised). Yum, China separated from Yum! Brands in October 2016. The company reported $9.9 billion in revenues in 2021.

This is a difficult time for restaurant operators in China, as COVID lockdowns have persisted in 2022. In addition, the global economic slowdown has been pronounced in emerging markets. As a result, YUMC’s quarterly results have suffered. In the second quarter, adjusted earnings-per-share declined 52% while revenue declined 13% year-over-year. The restaurant industry in China experienced a revenue decline of approximately 16% YoY in the quarter due to COVID lockdown measures. During the latter half of the second quarter, over 2,500 of YUMC’s stores were either temporarily closed or offered only takeaway and delivery services, which resulted in the company's decline in sales.

Investors will need to be patient, as management remains cautious about the remainder of the year. But the long-term picture remains extremely positive. As the largest restaurant company in China, a major emerging market with a population above 1 billion and a rising middle class, YUMC has a positive long-term growth outlook. In the meantime, the stock appears undervalued, with a 1.2% dividend yield. We expect total returns above 20% per year over the next five years for YUMC.

Comcast Corp. (CMCSA)

Comcast is a media, entertainment and communications company. Its business units include Cable Communications (High-Speed Internet, Video, Business Services, Voice, Advertising, Wireless), NBCUniversal (Cable Networks, Theme Parks, Broadcast TV, Filmed Entertainment), and Sky, a leading entertainment company in Europe that provides Video, High-speed internet, Voice, and Wireless Phone Services directly to consumers.

Comcast reported its Q3 2022 results on 10/27/22. For the quarter, revenue of $29.85 billion declined 1.5% year-over-year, but beat estimates by $120 million. Adjusted earnings-per-share of $0.96 beat estimates by $0.06.

Future growth is likely for the company. Management sees organic growth opportunities across its businesses, including increasing the capacity of its U.S. broadband network, producing more premium content that can increase engagement at its Peacock streaming service, and building its new theme park, Epic Universe, which is scheduled to open in the summer of 2025 in Orlando. Comcast has had a compelling earnings-growth history that was helped by share repurchases. From 2012 to 2021, its EPS increased at a compound annual growth rate (CAGR) of 12.3%.

Shares currently yield 3.4%. The company has increased its dividend for 14 years in a row. The stock trades for a 2022 price-to-earnings ratio of ~10, below our fair value P/E of 14. Lastly, we expect the company to grow its EPS by 9% per year over the next five years. Total returns are expected to reach just above 20% per year over the next five years.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.