These Dow Stocks May Never Grow Again

Lately, most investors have been more concerned about return of capital rather than strong returns on their capital. But unless you're content investing in companies that can only tread water even when the economy seems to be improving, then you need to focus on stocks that have solid prospects for significant future growth.

Unfortunately, many well-known companies have already put their best years behind them. Even among the best blue-chip stocks in the market, you won't always find much opportunity for growing their earnings substantially in the future.

Are these Dow stocks done?
Last week, I looked at stocks in the Dow Jones Industrials (INDEX: ^DJI) that had the best growth prospects for the next five years. Although some of the analysts covering those stocks were probably unrealistically optimistic about their prospects, some of the stocks actually showed real promise.

Today, let's turn that coin over and look at the Dow companies that analysts seem to think are doomed to slow growth or stagnation even over the long haul. I'll take a look at analyst estimates and then dig a bit deeper to see whether they're on target or missing the mark.

Pfizer (NYS: PFE) , 3.1% expected annual growth
Drug giant Pfizer faces a major problem: It lost patent protection on its blockbuster Lipitor drug last November. Although the company is taking steps to keep some sales of branded Lipitor as well as to tap into generic sales, Pfizer will have to make up the difference with new drugs from its pipeline. Analysts aren't sure that'll happen.

Even with slowing growth, I think Pfizer is doing what it can to enhance shareholder value. A possible spinoff of its nutrition and animal-health division is a step in the right direction, and recent dividend increases have rewarded patient shareholders. At 15 times earnings, the stock is neither bargain-priced nor terribly expensive, but a 4% dividend makes the stock look attractive.

AT&T (NYS: T) , 3.5% expected annual growth
It's no secret that telecom companies face big headwinds. Sales of smartphones are through the roof, but many involve big subsidies that suck earnings from telecoms to the phone manufacturers. Meanwhile, building out networks is expensive.

Again, though, the dividend argument provides a good counterbalance to the lack of growth. Investors may be happy to get nearly 6% on their investment even if the stock price never moves. After the T-Mobile fiasco, AT&T's future strategic direction is very uncertain right now, but this giant isn't going to disappear anytime soon either.

Hewlett-Packard (NYS: HPQ) , 4.5% expected annual growth
Of the four companies on this list, HP has the most uncertain future. It has suffered through a string of failed CEOs, and the resulting lack of leadership has left the company adrift without a coherent strategic vision.

New CEO Meg Whitman may be the one to set things straight at HP. But with even optimists not expecting big gains until next year at the earliest, it makes more sense to go with a faster-growing, better-yielding peer than to be patient with HP.

Merck (NYS: MRK) , 4.6% expected annual growth
Like Pfizer, Merck also faces a patent-cliff issue. Yet unlike its peer, Merck already is paying more to support its 4.3% dividend than it earns, despite having seen a big reduction in net income over the past five years. As Fool analyst Austin Smith sees Merck's situation, although it avoided the dividend cut that Pfizer made, Merck's payout now looks less uncertain -- even though the company raised that dividend just this past November, marking its first increase in seven years.

To support its dividend, Merck needs faster growth from its pipeline of new drugs than analysts currently expect. Although that pipeline is pretty big right now, I'm more comfortable with what Pfizer is doing to treat shareholders right than with Merck's less dramatic action. Time may prove me wrong, but Merck looks like a risky bet to me right now.

Should you give up on these stocks?
Growth is an important attribute for a stock, but even slow-growing stocks can make profitable investments -- if they come at the right price. Still, don't get tricked into thinking that slow-growth stocks deserve the same valuations as their faster-growing peers. If you do, then you'll be consistently disappointed when their prices don't move up as much as you expect.

One way to make sure your companies are growing the way you want is to track their earnings every quarter. In the Fool's "Fourth-Quarter Earnings Report: 7 Stocks You'll Want to Watch," you'll find information on this quarter's possible big performers. It's completely free for our readers, so access your free report today.

At the time thisarticle was published Fool contributorDan Caplingerstopped growing years ago. You can follow him onTwitter. He doesn't own shares of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Pfizer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool'sdisclosure policynever stops growing.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.