We’ve covered a lot of the important elements of dividend stock investing here in the last few months, from the importance of buying at low valuations to the benefits of increasing dividends.
Regardless of what other factors you consider as part of your investing system, there are a few good metrics for everyone to keep in mind when considering buying dividend-paying stocks for income.
One of the most common metrics is to simply look at the dividend itself: how long has the stock been paying a dividend? Has it ever been cut? How often has it been raised?
Companies that can pay or, even better, increase their dividends quarter after quarter and year after year are more likely to continue doing so in the future.
One easy way to find these stocks is to look at Standard & Poor’s list of “Dividend Aristocrats,” which are stocks that have increased their dividends every year for at least 25 years. The list currently comprises an impressive 54 companies, from 3M (MMM) to Walgreen Co. (WAG).
Roy Ward, Editor of Benjamin Graham Value Letter looked at the list of 54 Aristocrat stocks to find undervalued companies with better-than-average dividend growth prospects for the future. Here are two blue chip companies that currently sell at attractive prices recommended to Cabot Wealth Advisory Readers.
“Dover Corp. (DOV) is a diversified industrial manufacturer, but unlike many companies in the industrial sector, Dover has minimal dealings with the U.S. and other governments that are initiating drastic spending cuts. The company’s output includes: compressors, flow meters and bearings for industrial and aerospace customers; pumps and valves for clients in the petroleum industry; and microwave filters and automated equipment for the assembly of circuit boards for electronic industry manufacturers.
“Dover recently acquired Anthony International which makes specialty glass doors for refrigerators and freezers. Anthony will add noticeable sales and earnings in 2013 and beyond. The acquisition, plus the divestiture of underperforming assets, will enable sales and earnings growth to accelerate in 2013. Sales will likely increase 9% and EPS (earnings per share) will climb 15% to 5.48 in 2013.
“At 12.4 times my 2013 EPS forecast and with a dividend yield of 2.1%, DOV shares are very attractive and should outperform the S&P 500 Dividend Aristocrats Index during the next 12 months. Dover Corp. has increased its dividend every year for the past 25 years and will very likely increase the dividend by a substantial amount at mid-year. The dividend coverage ratio for DOV is a very conservative 29%—well below the maximum target of 50%. Buy DOV now.
“Family Dollar Stores (FDO) operates a chain of more than 7,000 retail discount stores in 44 states. FDO seeks low- to middle-income consumers and sells a selection of competitively priced merchandise. Items include consumables, home products, apparel and accessories, seasonal goods and electronics. Prices generally range from under $1.00 to $10.00.
“Family Dollar is aggressively opening new stores and renovating old stores. Sales increased a better-than-expected 13% during quarter ended 11/30/12, and same-store sales advanced an impressive 6.6%. However, EPS inched ahead just 1% as higher marketing costs and abundant price mark-downs caused the weak earnings results.
“Sales will likely rise 11% and EPS will climb 15% to 4.25 during the next 12-month period ending 2/28/14. New store openings could produce even better results. At 13.7 times my forecast, FDO shares are undervalued. Family Dollar has increased its dividend every year for the past 25 years and just last week raised the dividend by a whopping 24%. The dividend yield is now 1.8%. The dividend coverage ratio for FDO is only 28%, which again, is well below my maximum level of 50%. Buy FDO now.”
You can find additional recommended dividend-paying, high-performing stocks selling at bargain prices in the Cabot Benjamin Graham Value Letter. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks.
Wishing you success in your investing and beyond,
Editor of Investment of the Week
P.S. Two weeks ago we released our Dick Davis Dividend Digest Top Dividend Picks for 2013!
But it’s not too late for you to profit from the recommendations. Check out some of the huge gains our subscribers earned from last year’s Top Picks issue:
-Marathon Petroleum (MPC): Total return of 93% (Yield 3.77%) ?-RBS preferred ‘F’ series (RBS-F): Total return of 40% (Yield 10%)
-Hambrecht & Quist Life Sciences Fund (HQL): Total return of 30% (Yield 8.35%)
-McCormick (MKC): Total return of 30% (Yield 2.6%)
-C & F Financial Corp (CFFI): Total return of 24% (Yield 3.3%)
And there’s plenty more where they came from!