When it comes to income stocks, most investors know they won’t become millionaires overnight. These types of stocks usually grow slowly, and it may take several years for investors to see substantial profits. This means only the most patient investors will actually see these stocks reaching their full potential over time. 

But here is some good news for the more impatient income investors: Growth and rich yields are not mutually exclusive. On the contrary, it’s not too difficult to find companies that combine strong growth prospects with yields that are much better than the typical stock in the S&P 500.

Here is how I go about identifying high-yielding growth stocks… 

To find stocks offering equal parts income and growth, I ran a screen that included the following criteria: U.S. stocks yielding 4% or better and annual earnings per share (EPS) growth prospects of at least 15% in the next five years. This gave me a list of more than 20 names. I further refined the list by eliminating companies that haven’t grown the dividend in the past five years.

Here are the winners…

1. Meridian Bioscience Inc. (Nasdaq: VIVO)
Yield: 4%   
Estimated five-year annual EPS growth: 16%

Meridian has an industry-leading market share in diagnostic test kits used to identify and treat common gastrointestinal, viral and respiratory infections. The company sells its products and technologies to hospitals, laboratories, research centers and physician offices in more than 60 countries.

The major growth driver for Meridian is its new Illumigene line of molecular tests. The company introduced a test for diarrhea-causing bacteria last year and is introducing tests for neonatal infection, strep throat and whooping cough this year, all of which are expected to quadruple Illumigene’s sales. In addition, sales of food-borne tests, which grew 30% last year, should accelerate this year as Meridian introduces a food-borne test for Campylobacter, the No.1 contaminant in poultry.

Meridian’s sales rose 12% in fiscal year (Sept.) 2011 to $159.7 million, while earnings (excluding non-cash items) improved 6% to $0.69 per share. The company is forcasting at least 23% growth and full-year 2012 EPS in the $0.85 to $0.89 range.

Analysts say Meridian can deliver at least 16% a year in earnings growth for the next five years. The company has posted 19 straight years of dividend growth and has raised dividends an average of 22% a year for the past five years. Based on the current $0.76 annual dividend, Meridian shares yield 4.3%.

2. Watsco Inc. (NYSE: WSO)
Yield: 4%   
Estimated five-year annual EPS growth: 18%

Watsco is the nation’s leading distributor of air conditioning, heating and refrigeration equipment and related parts. It operates from more than 500 locations in the United States and Puerto Rico.

While heating/cooling is not exactly a growth industry, Watsco is benefiting from new U.S. Department of Energy standards, which require more energy-efficient heating and cooling systems. The company estimates there are about 89 million central air conditioning and heating systems installed in the United States that are more than 10 years old and due for replacement with more energy-efficient units.

Demand for replacement units and good performance from new locations helped Watsco post 7% growth to record sales of $2.3 billion in the first nine months of 2011. Earnings have risen 14% a year in the past decade, and analysts say replacement sales will accelerate earnings growth to 18% a year for the next five years. 

Watsco increased dividends 9% in January to a $2.48 annual rate, with shares yielding 3.6%. This company’s dividend track-record is impressive: 38 consecutive years of payments, 11 straight years of increases, and annual dividend growth averaging 35% for the past 10 years.   

3. Energy Transfer Partners LP (NYSE: ETP)
Yield: 7%   
Estimated five-year annual EPS growth:  19%

Energy Transfer Partners operates gas pipelines in the Western and Southwestern United States, and owns the largest intrastate pipeline system in Texas. The Limited partnership‘s natural gas operations include roughly 18,000 miles of gathering and transportation pipelines as well as treating, processing and storage facilities. Energy Transfer Partners also owns a 70% stake in Lone Star NGL LLC, a joint venture that owns natural gas liquid storage, processing and transportation assets in Texas, Louisiana and Mississippi.

This limited partnership’s improving growth prospects are the result of the close proximity of its pipelines to major energy discoveries like the Permian Basin and the Marcellus, Barnett, Fayetteville and Haynesville shale plays.

Energy Transfer Partners is investing $2 billion in organic growth prospects and $3.3 billion in strategic acquisitions. Last year, for instance, it acquired a processing plant serving the Haynesville shale field for an undisclosed amount. It’s also constructing a $300 million processing plant that will serve the Eagle Ford shale play. 

Revenue rose 14% to $5 billion in the first nine months of 2011 compared with the same period in 2010. Income per unit jumped 28% to $0.68, while analysts look for 19% yearly earnings growth in the next five years. Operating  cash flow totaled $1.03 billion  for the nine months ended in September and exceeded $882 million in dividend payments.

Management has made continued growth in distributable cash flow a high priority. An investor who purchased units five years ago would have collected a total of $16.33 per unit in dividends. The $3.58 annual distribution currently gives the stock a yield of 7.3%. 

Risks to Consider: Meridian and Watsco have above-average payout levels, so a stumble in earnings could put dividends at risk. Meridian’s current payout is 117% and cash flow hasn’t covered dividends so far this year. Watsco’s payout is also high, but more manageable at 82%. Energy Transfer Partners has more than enough cash flow to cover distributions, but hasn’t raised payments since 2008. 

Action to Take –> These three stocks offer a nice balance of income and growth. Energy Transfer Partners would be my top pick because of its superior yield and high forecasted earnings growth. Meridian offers a better yield, but slower dividend growth than Watsco. Meridian is also riskier because of a dividend payout that’s not sustainable if EPS doesn’t grow.