Win With Constant Income

9/9/2013


Only baseball enthusiasts steeped in the game's history can recall that Johnny Burnett delivered nine hits in a single game in 1932, a record that still stands. But even casual fans remember Joe DiMaggio for his 56-game hitting streak. We may be temporarily awed by bursts of greatness, but we tend to treasure those who remain highly effective over a prolonged period.

Income investors especially prize consistency. Consider the popularity of the Dividend Aristocrats, a group of 54 companies in the S&P 500 Index that entered 2013 with at least 25 straight years of dividend growth. The portfolio includes the likes of monitored stocks Aflac ($58; AFL), Chevron ($121; CVX), Dover ($86; DOV), and Exxon Mobil ($87; XOM).

The aristocrats continue to deliver strong growth. Through July, median 2013 dividend growth for the aristocrats is 9%, not far below the 12% growth for S&P 500 companies with shorter track records.

To cut a broader swath of steady growers, we relaxed the standards to include S&P 1500 companies with at least 10 straight years of higher dividends. These stocks are most prevalent in the industrials and utilities sectors and less common in the health-care and energy spaces.

From that group, we compiled a list of 27 stocks monitored by the Forecasts that earn ranks of A (above average) or B (average). Not all of these stocks qualify as our top ideas for total return over the next 12 to 24 months, but they could reward investors with long time horizons who seek a steady and growing source of income from dividends. Four are reviewed below.

Aflac ($58; AFL) seeks to keep its dividend in line with growth from operating earnings per share, before the impact of currency translation; the company generates more than three-fourths of its sales in Japan. In July, management projected 5% profit growth for 2013. And in October last year and the year before, Aflac raised its quarterly dividend.

Looking ahead, a law in the works could leave Aflac with extra cash to help cover its dividend growth. Several proposals in Congress would require a special, lower tax rate on all foreign profits, rather than current 35% rate currently charged only when companies bring profits into the U.S. Aflac could benefit from a lower tax rate, since it regularly repatriates cash from Japan to fund dividends and stock buybacks, paying the higher tax rate. Aflac is a Buy and a Long-Term Buy.


Helmerich & Payne ($63; HP) has paid a dividend without interruption since 1959 and raised the distribution in 40 straight years. Following a pair of hikes in less than 12 months, Helmerich's quarterly dividend stands at $0.50 per share, compared to $0.07 per share a year ago.

In the midst of the U.S. rig-replacement cycle, H&P continues to pick up market share. The company's sales growth has decelerated in five consecutive quarters, a trend projected to continue into the September quarter. But at 11 times trailing earnings, H&P trades 14% below the median oil-and-gas driller in the S&P 1500 and 18% below its three-year average. The stock also scores above 80 in Quadrix for
price/cash flow ratio and enterprise ratio, two of the three most effective factors in the past decade. Helmerich & Payne is a Focus List Buy and a Long-Term Buy.


Dover ($86; DOV), a maker of specialized industrial products and manufacturing equipment, is being initiated as a Long-Term Buy. Dover announced a 7% hike to its quarterly dividend in August, marking 58 straight years of increases. Yielding 1.8%, the stock pays out a reasonable 31% of its profits in dividends. Stock buybacks have shaved 7% from the share count in the past year.

With an Overall rank of 93, the stock scores above 60 in Quadrix for all six category scores. In the past three years, Dover has generated annualized growth of 10% for sales, 22% for per-share earnings, and 15% for cash provided by operations. Analyst estimates project Dover will grow per-share profits 18% to $1.50 in the September quarter and 19% for the year. Shares trade at 16 times estimated 2013 earnings, a 10% discount to the median for industrial-machinery stocks in the S&P 1500 Index. Dover is a Long-Term Buy.


Qualcomm ($67; QCOM) supplies much of the equipment tucked inside of mobile devices. Google's ($860; GOOG) new Moto X smartphone features an estimated $43 in Qualcomm components, which equates to about 21% of each phone's supply costs. Qualcomm equipment also accounts for at least $20 of every Galaxy S4 phone sold by Samsung Electronics ($1,238; SSNLF). Qualcomm's sales have advanced at double-digit rates for 11 straight quarters, a trend likely to continue in the September (projected to rise 30%) and December (17%) periods.

Free cash flow jumped 29% to $4.73 billion in the past year, pushing Qualcomm's cash position to $11.46 billion, compared to just $20 million of long-term debt. Following a 40% hike to the quarterly dividend in March, Qualcomm yields 2.1%, well above its five-year average of 1.6% and the current average of 1.5% for S&P 500 technology stocks. Qualcomm is a Focus List Buy and a Long-Term Buy.

27 SERIAL DIVIDEND GROWERS
The 27 Monitored List stocks presented below have increased their dividend for at least 10 consecutive years. Most have delivered impressive dividend growth, averaging 17% annually over the past decade. All 27 stocks are ranked A (above average) or B (average) on our Monitored List, with recommended stocks listed in bold.
Annual Dividend
----- Growth -----
------- Quadrix Scores -------
Company (Price; Ticker)
Div.
($)
Yield
(%)
Years Of
Consecutive
Increases
Last
Increase
(%)
5
Years
(%)
10
Years
(%)
Payout
Ratio
(%)
Value
Quality
Overall
Rank
3M ($113; MMM)
2.54
2.2
55
8
5
7
40
48
75
68
B
Aflac ($58; AFL)
1.40
2.4
30
6
8
16
21
97
88
95
A
Canadian Nat'l Railway
($95; CNI)
1.66
1.8
17
15
14
21
29
54
88
68
B
Caterpillar ($83; CAT)
2.40
2.9
19
15
7
13
37
89
69
56
B
Chevron ($121; CVX)
4.00
3.3
26
11
9
11
35
80
67
60
B
Coca-Cola ($38; KO)
1.12
3.0
51
10
8
10
55
46
82
44
B
Dover ($86; DOV)
1.50
1.8
58
7
8
10
31
63
84
93
A
Emerson ($61; EMR)
1.64
2.7
56
2
6
8
47
51
59
48
B
Exxon Mobil ($87; XOM)
2.52
2.9
31
11
10
10
32
80
63
51
B
Helmerich & Payne
($63; HP)
2.00
3.2
40
233
58
29
36
90
92
98
A
IBM ($184; IBM)
3.80
2.1
18
12
14
19
24
87
85
75
B
Johnson & Johnson
($86; JNJ)
2.64
3.1
51
8
7
11
49
42
71
51
B
Kimberly-Clark
($93; KMB)
3.24
3.5
41
9
7
9
58
46
72
41
B
Lockheed Martin
($124; LMT)
4.60
3.7
11
15
22
25
52
52
75
79
B
Lowe's ($46; LOW)
0.72
1.6
51
12
16
28
35
45
76
84
B
McDonald's ($95; MCD)
3.08
3.3
37
10
15
23
57
53
83
50
B
Medtronic ($52; MDT)
1.12
2.2
36
8
8
14
30
64
79
68
A
Monsanto ($99; MON)
1.72
1.7
11
15
12
21
38
50
84
63
B
Norfolk Southern
($73; NSC)
2.08
2.9
11
4
10
21
40
82
77
67
A
Occidental Petroleum
($88; OXY)
2.56
2.9
11
19
15
17
38
81
60
70
B
PepsiCo ($80; PEP)
2.27
2.8
41
6
6
13
52
49
77
50
B
Qualcomm ($67; QCOM)
1.40
2.1
11
40
17
26
32
74
96
97
A
Target ($64; TGT)
1.72
2.7
42
19
22
20
40
82
72
50
B
TJX ($53; TJX)
0.58
1.1
17
26
21
24
21
45
95
83
A
United Technologies
($103; UTX)
2.14
2.1
20
11
11
15
38
54
69
62
B
Walgreen ($49; WAG)
1.26
2.6
38
15
23
22
42
57
66
49
B
Wal-Mart Stores
($73; WMT)
1.88
2.6
39
18
15
18
37
78
77
58
B
Note: Quadrix scores are percentile ranks, with 100 the best.     NA Not available.

 


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