1 growth share I’d add to my portfolio that also pays dividends

Gabriel McKeown identifies a growth share in the FTSE 350 that he’d be tempted to add to his holdings for long-term capital appreciation.

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When building an investment portfolio, I think it’s important to implement a range of strategies. These often include three main buckets: income, value, and growth. The first two of these are relatively ‘passive’. They aim for consistent dividend income, combined with steady capital appreciation. Growth shares, on the other hand, are all about achieving high levels of share price growth, often without a dividend.

Finding the right opportunity within the growth space can be tricky. This sector is known for having much higher price-to-earnings (P/E) ratios. It can also have a lack of stable income, and sometimes even an absence of profitability. Despite this, I believe that by using a growth investing filter, I can identify promising opportunities, with strong underlying fundamentals that could set up my portfolio for long-term success.

The first company I’ve identified by my filter is Plus500 (LSE: PLUS), an online provider of contracts for difference (CFD) trading. The share price has had an interesting few years, rising a staggering 63.7% in 2020. It slightly dipped in 2021, but went on to increase almost 27% this year.

Growth characteristics

Plus500’s impressive level of annual earnings growth was the primary reason for the growth filter detecting the company. Earnings per share have grown by an average of 35% a year for the last 10 years. Furthermore, forecasts suggest earnings will grow by an additional 26.9% next year.

In addition to these strong growth characteristics, the company has high profit margins. This is combined with significant cash flow generation, and considerable efficiency in generating income from invested capital. Furthermore, debt is minimal, which is somewhat rare within the growth sector.

Dividend earning potential

Another appealing element of Plus500 is the fact that the company is currently paying a dividend of 5%. In fact, it has done so for nine years consistently. It’s quite unusual for a growth company to pay such a high percentage. Additional income is often used to fund expansion, rather than pay dividends. This could potentially provide an additional source of returns for me.

Future headwinds

Despite these appealing underlying fundamentals, it’s important I recognise that the company may face future headwinds. The world of CFD trading is seeing increased regulatory scrutiny. And that means clampdowns on access to this sector by retail investors are possible.

The company also saw significant levels of earnings growth over the pandemic. This was due to an increase in the number of people entering the world of trading. But active customers dropped by 19% over the third quarter of this year, indicating that user growth is likely to continue to disappoint”.

Yet with its potential for share price rises over the next few years, I think Plus500 gives me a promising opportunity to add to the growth portion of my portfolio. I’d consider adding this stock to my holdings when I have some spare cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gabriel McKeown has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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