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When a company has a long-term track record of consistent and rising dividend payments, it is a clear indicator that the company's financial position is good. Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead.

I tried to determine if the five stocks that have the highest dividend growth record among the stocks included in the S&P 500 index are currently a bargain

In this article, I will give the corresponding fundamental parameters for these five companies and my own opinion about them. Nonetheless, these data and my opinion should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance and finviz.com on February 26, before the market open.

The table and the chart below present the top five highest dividend growers, their forward annual dividend rate, the forward yield, the payout ratio and the annual average dividend rate of growth for the past five years.

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UnitedHealth Group Incorporated (UNH)

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States.

UnitedHealth has quite a low debt (total debt to equity is 0.54), and it has a very low trailing P/E of 10.09 and even a lower forward P/E of 8.91. The PEG ratio is very low at 0.92, and the price-to-sales ratio is also very low at 0.49. The price to free cash flow for the trailing 12 months is very low at 10.58, and the average annual earnings growth estimates for the next five years is at 10.94%. The forward annual dividend yield is at 1.59%, and the payout ratio is only 15.2%. The annual rate of dividend growth over the past five years was very high at 92.8%.

The company is trading 11.56% below its 52-week high and has 23.3% upside potential based on the consensus mean target price of $65.72. Analysts recommend the stock; among the 22 analysts covering the stock, 10 rate it as a strong buy, eight rate it as a buy and only four rate it as a hold.

On January 17, UnitedHealth reported its results for the fourth quarter and full year of 2012, which met expectations on EPS and beat expectations on revenues. In the report, Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said:

In 2012 we continued to gain market share and broadened our revenue and earnings growth sources for the future by continuing to focus on ever-stronger execution on the fundamentals of serving our customers.

Also in the report, the company said that it continues to estimate 2013 revenues of $123 billion to $124 billion and net earnings in the range of $5.25 to $5.50 per share.

The cheap valuation metrics, the solid dividend, the very high dividend growth record, the good fourth quarter 2012 financial results, and the 23.3% upside potential based on the consensus mean target price of $65.72, are all factors that make UNH stock quite attractive.

UNH Dividend Chart

UNH Dividend data by YCharts

UNH Dividend Yield Chart

UNH Dividend Yield data by YCharts

(click to enlarge)

Chart: finviz.com

Aetna Inc. (AET)

Aetna Inc. operates as a diversified health care benefits company in the United States.

Aetna has a very low trailing P/E of 9.75 and even a lower forward P/E of 8.16. The PEG ratio is at 1.29, and the price-to-sales ratio is very low at 0.42. The average annual earnings growth estimates for the next five years is at 7.54%. The forward annual dividend yield is at 1.71%, and the payout ratio is only 15.2%. The annual rate of dividend growth over the past five years was very high at 77.3%.

The AET stock is trading 8.61% below its 52-week high, and has 16.9% upside potential based on the consensus mean target price of $54.61. Analysts recommend the stock; among the 20 analysts covering the stock, seven rate it as a strong buy, six rate it as a buy and seven rate it as a hold.

On January 31, Aetna reported its results for the fourth quarter and full year of 2012, which met expectations on revenues and missed estimates on earnings per share by $0.02.

Fourth-quarter 2012 Highlights

  • Fourth-quarter 2012 operating earnings per share were $0.94
  • Full-year 2012 operating earnings per share were $5.13
  • Net income per share was $0.56 for the fourth quarter 2012 and $4.81 for the full year
  • Total medical benefit ratio was 84.1 percent in the fourth quarter 2012 and 82.2 percent for the full year
  • Revenue increased 5 percent for the fourth quarter of 2012 and 6 percent for full-year 2012 over the corresponding periods of 2011
  • Medical membership increased in the fourth quarter of 2012 and totaled 18.2 million members at December 31, 2012
  • Aetna reaffirms full-year 2013 projected operating earnings per share of at least $5.40

In the report, Mark T. Bertolini, Aetna chairman, CEO and president said:

Aetna's solid fourth-quarter performance caps off an important year for the company. In 2012 we demonstrated the power of our diversified portfolio, advanced our mission to transform the health care marketplace and agreed to acquire Coventry Health Care, which will greatly enhance our long-term strategy. We are positioned well for 2013, with new commercial contract wins and a successful Medicare selling season across our entire portfolio of Medicare products.

The cheap valuation metrics, the solid dividend, the very high dividend growth record, the 16.9% upside potential based on the consensus mean target price of $54.61, make AET stock quite attractive.

AET Dividend Chart

AET Dividend data by YCharts

AET Dividend Yield Chart

AET Dividend Yield data by YCharts

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Chart: finviz.com

Ensco plc (ESV)

Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide.

Ensco has a low debt (total debt to equity is 0.42), and it has a very low trailing P/E of 11.46 and even a lower forward P/E of 8.59. The PEG ratio is very low at 0.42, and the average annual earnings growth estimates for the next five years is very high at 27.10%. The forward annual dividend yield is at 2.57%, and the payout ratio is only 29.5%. The annual rate of dividend growth over the past five years was very high at 69.5%.

The ESV stock is trading 11.35% below its 52-week high, and has 17.8% upside potential based on the consensus mean target price of $68.71.

On February 21, Ensco reported its results for the fourth quarter and full year of 2012. The company reported diluted earnings per share from continuing operations of $1.04 in fourth quarter 2012, compared to $0.97 per share in fourth quarter 2011. Revenues grew 12% to $1.086 billion in fourth quarter 2012 from $973 million a year ago. A growing active fleet, higher average day rates in the jackups segment and improved utilization and average day rates for the floaters segment contributed to this increase. In the report, Dan Rabun, chairman, president and chief executive officer stated:

The past year has been a remarkable period of growth for Ensco. We achieved record revenues and earnings as we added new ultra-deepwater rigs, increased utilization and benefited from rising customer demand. During the year, we delivered ENSCO 8505 and ENSCO 8506, the final two rigs in the ENSCO 8500 Series®, as well as ENSCO DS-6, our fourth Samsung DP-3 ultra-deepwater drillship. Each of these rigs has commenced work on multi-year programs for repeat customers, reinforcing the advantages of fleet standardization. Ensco's growth will continue as we complete the construction of six additional rigs that are scheduled for delivery through the end of next year. These rigs will provide future earnings growth and afford us the flexibility to invest further in our fleet while returning additional capital to shareholders.

The compelling valuation metrics, the solid dividend, the strong dividend payments growth rate, the good fourth quarter 2012 financial results, and the 17.8% upside potential based on the consensus mean target price of $68.71, are all factors that make ESV stock quite attractive.

ESV Dividend Chart

ESV Dividend data by YCharts

ESV Dividend Yield Chart

ESV Dividend Yield data by YCharts

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Chart: finviz.com

Wyndham Worldwide Corporation (WYN)

Wyndham Worldwide Corporation, together with its subsidiaries, provides various hospitality products and services to individual consumers and business customers in the United States and internationally.

Wyndham Worldwide has a trailing P/E of 20.87 and a low forward P/E of 13.70. The PEG ratio is quite low at 1.12, and the price to free cash flow for the trailing 12 months is very low at 11.84. The average annual earnings growth estimates for the next five years is very high at 18.60%. The forward annual dividend yield is at 1.60%, and the payout ratio is at 33.3%. The annual rate of dividend growth over the past five years was very high at 63%.

The company is trading 4.86% below its 52-week high and has 19% upside potential based on the consensus mean target price of $68.25. Analysts recommend the stock; among the 13 analysts covering the stock, four rate it as a strong buy, seven rate it as a buy and only two rate it as a hold.

On February 06, Wyndham Worldwide reported its results for the fourth quarter and full year of 2012, which beat EPS expectations by $0.03 and beat expectations on revenues.

Fourth-quarter 2012 Highlights

  • Fourth quarter adjusted diluted earnings per share was $0.63, compared with $0.47 in the fourth quarter of 2011, an increase of 34%. Fourth quarter 2012 reported diluted EPS was $0.57, an increase of 54% from the same period in 2011.
  • Free cash flow increased to $796 million for the year ended December 31, 2012, compared with $764 million in 2011.
  • The Company's Board of Directors authorized an increase in the quarterly cash dividend to $0.29 from $0.23 per share, beginning with the dividend that is expected to be declared in the first quarter of 2013.
  • During the quarter, the Company repurchased 2.9 million shares of its common stock for $151 million. For the full year, the Company spent $623 million to repurchase 12.9 million shares of its common stock.

In the report, Stephen P. Holmes, chairman and CEO, said:

I'm pleased by our 30% adjusted EPS growth in 2012, especially coming off of 25% growth in 2011. These results reflect the momentum in our business, the strong execution by our teams and a capital allocation philosophy that works for shareholders.

The cheap valuation metrics, the solid dividend, the very high dividend growth record, the good fourth-quarter 2012 financial results, and the 19% upside potential based on the consensus mean target price of $68.25, are all factors that make WYN stock quite attractive.

WYN Dividend Chart

WYN Dividend data by YCharts

WYN Dividend Yield Chart

WYN Dividend Yield data by YCharts

(click to enlarge)

Chart: finviz.com

CenturyLink, Inc. (CTL)

CenturyLink, Inc. operates as an integrated telecommunications company in the United States.

CenturyLink has a trailing P/E of 27.27 and a very low forward P/E of 12.44. The price to free cash flow is quite low at 15.94. The forward annual dividend yield is very high at 8.51%, but the payout ratio is very high at 232%. The annual rate of dividend growth over the past five years was very high at 62%.

The company is trading 19.36% below its 52-week high and has 11% upside potential based on the consensus mean target price of $37.84.

On February 13, CenturyLink reported its results for the fourth quarter and full year of 2012, which missed EPS expectations by $0.29 and met expectations on revenues.

Fourth Quarter Highlights

  • Improved year-over-year revenue trend to a 1.5% rate of decline compared to a 3.2% decline in fourth quarter 2011.
  • Achieved free cash flow of $610 million, excluding special items and integration-related capital expenditures.
  • Ended fourth quarter 2012 with approximately 5.85 million high-speed Internet subscribers2; adding more than 41,000 customers in the fourth quarter.
  • Improved access line loss trend during fourth quarter 2012 to a 5.7% annual decline compared to a 6.6% annual decline in fourth quarter 2011.
  • Added more than 10,000 CenturyLink® PrismTM TV subscribers in fourth quarter 2012, ending the quarter with nearly 115,000 subscribers in service.
  • Generated sequential recurring revenue growth in our Enterprise Markets - Network segment.
  • Opened a new data center3 in Frankfurt, Germany, bringing total data centers to 54 throughout North America, Europe and Asia, with total sellable floor space of approximately 1.4 million square feet.

In the report, Glen F. Post, III, chief executive officer and president said:

We are pleased with our fourth quarter and full-year results, which reflect the continued execution of our strategy to focus on investing in our key growth drivers to further stabilize our top-line revenue while aligning our operating costs with revenue and growth opportunities. Our investments in broadband, PrismTM TV, fiber-to-the-tower and data hosting continue to provide a broad base of organic revenue growth opportunities and helped drive pro forma full-year operating revenue improvement to a 1.7% decline in 2012 compared to a 3.8% decline a year ago.

The company also said that it would cut its quarterly dividend to 54 cents from 72.5 cents while it promised to buy back $2 billion of shares by February 13, 2015. Investors were disappointed by the fourth-quarter financial results and by the dividend cut, which cause the company shares to fall by 22.6% the day after the announcement.

In my opinion, after the correction in its price, CTL stock is quite attractive due to the rich dividend, the cheap valuation and the 11% upside potential based on the consensus mean target price of $37.84.

CTL Dividend Chart

CTL Dividend data by YCharts

CTL Dividend Yield Chart

CTL Dividend Yield data by YCharts

(click to enlarge)

Chart: finviz.com

Conclusion

The top five highest S&P 500 dividend growers are all quite attractive, but I cannot say that they are bargain stocks now.

Source: 5 S&P 500 Top Dividend Growers; Are They Bargain Stocks Now?