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Arie Goren, Portfolio123 (474 clicks)
Long only, value, research analyst, dividend investing
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Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. I have searched for very profitable companies that pay rich dividends and that raise their payouts significantly each year.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

1. Dividend yield is greater or equal 4.0%.

2. Annual rate of dividend growth over the past five years is greater than 13%.

3. The payout ratio is less than 75%.

4. Trailing P/E is less than 15.

5. Forward P/E is less than 14.

6. Average annual earnings growth estimates for the next 5 years is greater or equal to 8%.

After running this screen on January 29, 2013 before the market open, I discovered the following four stocks:

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CA Technologies (CA)

CA Technologies, together with its subsidiaries, provides enterprise information technology management software and solutions in the United States and internationally.

CA Technologies has a very low debt (total debt to equity is only 0.24), and it has a low trailing P/E of 12.60 and even a lower forward P/E of 9.87. The average annual earnings growth for the past 5 years was very high at 53.77% and the average annual earnings growth estimates for the next 5 years is at 8.0%. The price to free cash flow for the trailing 12 months is very low at 12.47. The forward annual dividend yield is very high at 3.99%, and the payout ratio is at 50.3%. The annual rate of dividend growth over the past five years was very high at 45%.

The stock price is 6.97% above its 20-day simple moving average, 10.90% above its 50-day simple moving average and 2.26% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

On January 22, CA Technologies reported its third quarter fiscal year 2013 results, which beat EPS expectations by $0.02 and beat expectations on revenue. For the quarter, the company posted revenue of $1.195 billion, down 5% from a year ago, but above the street expectations at $1.17 billion. Non-GAAP profits from continuing operations of 63 cents a share edged the street expectations at 61 cents. In the report, Mike Gregoire, CA Technologies CEO said:

While we are encouraged by improvements we saw in the business during our third quarter, including increased demand for our Nimsoft, Infrastructure Management and Service Virtualization offerings, we know that we need to do more to accelerate innovation, gain market share and better differentiate our solutions in the marketplace. We also know there is room for improvement in our cost of sales and in the speed and intensity with which we pursue our objectives. Over the next few months we will perform a detailed diagnostic of where we are, and lay out a plan on how to achieve our strategic and financial goals.

The compelling valuation metrics, the rich dividend, the good 3Q financial results and the fact that the stock is in an uptrend are all factors that make CA stock quite attractive.

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Data: Yahoo Finance

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Chart: finviz.com

Darden Restaurants, Inc. (DRI)

Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada.

Darden Restaurants has a low trailing P/E of 13.08 and an even lower forward P/E of 12.21; the PEG ratio is at 1.21. The average annual earnings growth estimates for the next five years is quite high at 11.57%. The forward annual dividend yield is very high at 4.36%, and the payout ratio is at 55%. The annual rate of dividend growth over the past five years was very high at 22.7%.

On December 20, 2012, Darden Restaurants reported its 2Q fiscal 2012 financial results, which was in-line on EPS and beat expectations on revenue. In the report, Darden affirmed its financial outlook for fiscal 2013:

The Company anticipates total sales growth of between +7.5% and +8.5% for the year based upon combined U.S. same-restaurant sales of approximately -1.0% to flat for Red Lobster, Olive Garden and LongHorn Steakhouse, incremental sales starting in fiscal September from the acquisition of Yard House and the opening of approximately 100 net new restaurants in fiscal 2013, not including the initial 40 Yard House restaurants operating at the close of the acquisition. And, the Company expects diluted net earnings per share from continuing operations of $3.29 to $3.49 for fiscal 2013, which includes approximately 8 to 10 cents of transaction and closing costs associated with the purchase of Yard House USA, Inc.

The cheap valuation, the solid growth prospects and the rich dividend are all factors that make DRI stock quite attractive.

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Data: Yahoo Finance

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Chart: finviz.com

Lorillard, Inc. (LO)

Lorillard, Inc., through its subsidiaries, manufactures and sells cigarettes in the United States

Lorillard has a low trailing P/E of 14.29 and an even lower forward P/E of 13.07; the PEG ratio is at 1.66. The average annual earnings growth estimates for the next five years is at 8.60%. The forward annual dividend yield is very high at 5.21%, and the payout ratio is at 74.5%. The annual rate of dividend growth over the past five years was very high at 13.1%.

Lorillard will report its latest quarterly financial results on February 07. LO is expected to post a profit of $0.76 a share, a 4.1% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Data: Yahoo Finance

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Chart: finviz.com

Seagate Technology (STX)

Seagate Technology Public Limited Company designs, manufactures, markets, and sells hard disk drives for enterprise storage, client compute, and client non-compute market applications worldwide.

Seagate has an extremely low trailing P/E of 4.95, and an extremely low forward P/E of 6.69. The PEG ratio is also very low at 0.40. The price to free cash flow for the trailing 12 months is very low at 4.51, and the price to sales is also very low at 0.89. The average annual earnings growth for the past five years has been very high at 33.07%, and the average annual earnings growth estimates for the next five years is quite high at 12.50%. The forward annual dividend yield is very high at 4.06%, and the payout ratio is very low at 20.1%. The annual rate of dividend growth over the past five years was very high at 29.8%.

The stock price is 11.60% above its 20-day simple moving average, 25.05% above its 50-day simple moving average and 31.95% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

On January 28, Seagate Technology reported its second quarter fiscal 2013 results, which beat EPS expectations by $0.02 and beat expectations on revenue. For the quarter, Seagate reported revenue of $3.7 billion, with non-GAAP profits of $1.38 a share. The company shipped 58 million drives in the quarter. The company earlier this month had said it would report revenue of at least $3.6 billion. Street consensus was $3.58 billion and $1.28 a share. Seagate forecast third-quarter revenue below analysts' estimates, on muted demand for its hard disk drives as consumers pick smartphones and tablets over PCs.

In the report, Steve Luczo, Seagate's chairman, president and chief executive officer, said:

Seagate is executing well in an environment where customer demand forecasting is challenging. Looking ahead, we will continue to manage our business conservatively to the demand environment, focus on profitability and effectively invest for market leadership in storage for mobility, cloud and open source. Creating value for shareholders remains a top priority, and in the first half of fiscal 2013, we returned over 95% of operating cash flows through share redemptions and dividends.

Despite the disappointing third-quarter revenue forecast, the compelling valuation metrics, the rich dividend and the fact that the stock is in an uptrend are all factors that make STX stock quite attractive.

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Data: Yahoo Finance

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Chart: finviz.com

Source: 4 High-Yielding Dividend Stocks That Have Hiked Payouts By At Least 13% For 5 Years