Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message| ()  

In this low interest environment engineered by the Federal Reserve, income investors need to go far afield to find dividend ideas that provide adequate yield with acceptable risk. I prefer to find my dividend ideas outside the normal channels (Utilities, Pharma, Telecom, etc. ...) as other overlooked sectors could provide a solid income with better growth prospects over time. In addition, traditional dividend paying sectors look stretched to me from a valuation perspective especially Utilities, which are selling for around a 15 P/E ratio, a premium to the overall market even after underperforming in 2012. Here are two stocks to consider for income investors that look like they will provide growth and income in the years ahead.

Validus Holdings (VR) provides reinsurance and insurance coverage in the property, marine, and specialty lines markets worldwide . The stock has loss some 10% over the last month as it will take a better than $300mm hit from the damage from Sandy. However, pricing on its core insurance lines is expected to rise in the mid to high single digits as a result of the storm.

4 reasons VOD is solid income pick up at $33.50 a share:

  1. The stock yields 3% and has raised its dividend by 25% over the last three years. It also has a low payout ratio (Less than 25% based on FY2012's consensus earnings estimates).
  2. Credit Suisse has an "Outperform" rating and a $42 price target on VR. It estimates the company will make almost $6 a share in FY2014, which could lead to a substantial dividend increase over the next two years if company hits this projection.
  3. The company has easily beat earnings estimates each of the last three quarters, and analysts believe the company will achieve almost a 20% sales increase in FY2013 due partly to its recent acquisition of Flagstone Re.
  4. VR is cheap at less than 7x forward earnings. It also sells for just 86% of book value.

TransMontaigne Partners (TLP) operates as a terminaling and transportation company. It provides integrated terminaling, storage, transportation, and related services for customers engaged in distributing and marketing energy products.

4 reasons TLP can be added to your income portfolio at just over $37 a share:

  1. TLP yields almost 7% (6.96%) and has raised its payouts by better than 50% over the last seven years. It recently announced that it acquired a 42.5% ownership interest for approximately $79M in Battleground Oil Specialty Terminal Company. This should improve revenue and cash flow growth, and hopefully lead to a faster pace of distribution payouts in the years ahead.
  2. This acquisition was the key reason Stifel Nicolaus just raised its rating on TLP from "hold" to "buy". The analyst firm has a $41 price target on TransMontaigne.
  3. TLP is priced at 8x operating cash flow and just over 14x forward earnings, reasonable valuations for a 7% yielder.
  4. The company has beat earnings estimates easily three of the last four quarters. The average beat over consensus during that time span has averaged 18%.
Source: 2 Yield Plays From Outside Traditional Sectors