As we've mentioned, rates are at historical lows and the Fed plans to keep rates very low through 2014, which has made the current market a great environment for seeking out solid dividends. We have found five dividend stocks that have "safe" dividends (all have dividend coverage ratios of at least 1.8). Although the dividend yields range from 2.7% to 3.8%, all the companies have impressive growth prospects, with each expected to grow EPS at an annualized rate of 15% over the next five years. This provides these five stocks with the "double whammy" opportunity: income and price appreciation (check out 5 other dividend stocks on sale).
- Questcor Pharmaceuticals Inc (NASDAQ:QCOR) pays a 3.1% dividend yield with a dividend coverage of 3.1, and is expected to grow EPS by 33% annually for the next five years.
Questcor is a bio-pharmaceutical company and after losing 75% of its market value in a matter of days back in September 2012 the company has slowly worked its way back and is only down 8% over the past twelve months. The big fall was after fears of insurance coverage were brought to light, as well as, concerns over marketing for its key drug. The company's primary drug is H.P. Acthar Gel, which is an injectable drug that is approved for the treatment of 19 indications, namely for acute exacerbations of multiple sclerosis.
This biopharma company has one of the best "covered" dividends of the five stocks listed and a dividend yield that out paces the 30-year U.S. treasury bond. What makes Questcor even more compelling is its 0.3 PEG ratio (anything below 1.0 is a great growth at a reasonable price opportunity). Its low PEG suggests that investors are not fully appreciating the stocks ability to grow 28% annually over the next five years per analysts' estimates (read more about Questcor's dividend growth potential).
- Schweitzer-Mauduit International, Inc. (NYSE:SWM) pays a 3.2% dividend yield with a dividend coverage of 2.2. The five year expected EPS growth rate is 15% annually.
Schweitzer-Mauduit is a diversified producer of premium specialty papers and the world's largest supplier of fine papers to the tobacco industry. The stock is also fairly cheap with a PEG at 0.9. What else makes the stock cheap? It is currently trading around 70% of the S&P 500's P/E, where its 10-year average is 100%, which suggests there is 35% upside to the stock if it were to trade in line with the S&P P/E.
Tobacco industry products comprised approximately 93% of the company's consolidated net sales over the last three years, but don't let that frighten you. The tobacco industry has proven itself time and time again to be a cash flow generating machine (just check out the top somkin' dividends).
Schweitzer-Mauduit has also been consistently growing earnings, going from $1.10 in 2009, $1.93 in 2010, $2.58 in 2011 and $2.64 in 2012, now expected to see 2013 EPS to come in at $3.70. What's more is that analysts are expecting the company to grow earnings at an annualized 15% over the next five years. Fellow SA contributor Matt Schilling has a solid piece on the dividend paying paper companies (check it out here). In it he has a quote from the company CEO that sums up the reason to invest in the company…"with that in mind, going forward we intend to return at least one third of annual free cash flow to shareholders. The doubling of our quarterly dividend and implementation of a new share repurchase program are reflective of our commitment to this new capital allocation strategy and our confidence in the long-term strength of the company."
- Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is expected to grow EPS at 15% annually, with a dividend coverage of 2.2 and a 2.7% divided yield.
Taiwan Semiconductor happens to be the world's largest dedicated integrated circuit foundry. The company's long-term goal is to establish itself as one of the world's leading semiconductor companies by building upon the strengths that have made it the leading IC foundry in the world. Revenue growth is expected to be robust going forward, with analysts' estimates at 11% in 2013 and 14% in 2014, thanks to the continued strong demand for next generation mobile devices (see if Taiwan is partnering with Apple).
- Siemens AG (NYSE:SI) has the highest expected 5-year earnings growth at 35% annually. As well, the company's dividend yield is near the top of the five stocks at 3.8%, with a 1.8 dividend coverage ratio.
Siemens is quite a diversified company, and has been a leader in everything it's tried -- specifically it is a leader in many of its key segments, including industrial automation, power generation, medical equipment and transportation. Healthcare is one of its up-and-coming segments, seeing rapid growth. Its major segments are as follows: Industry (26% of revenues) includes industry automation and building technologies, Energy (35%) includes power transmission and renewable energy, Healthcare (17%) includes hearing instruments and therapy equipment, and Infrastructure (22.5%) includes sustainable solutions for cities. Siemens did report relatively modest first quarter fiscal 2013 results, but its long-term prospects and entry into emerging markets is the real story here.
- ENSCO PLC (NYSE:ESV) pays a dividend yield of 3.4% with dividend coverage of 2.6. Even more impressive is its five year expected EPS growth rate of 29% annually.
Ensco is one of the leading suppliers of offshore contract drilling services to the oil and gas industry. Ensco has positioned itself nicely over the last few years as an international driller, and the company is looking to Indonesia, Malaysia and Australia for growth in 2013.
Ensco has also been actively transitioning to the higher-margin deepwater drilling services. For 2012, the company saw 43% of contract drilling revenues generated from deepwater drilling and expects 69% in 2013. This is in part thanks to a number of new multi-year projects in the deep waters of West Africa, Brazil, Southeast Asia and the Mediterranean. Ensco also has two un-contracted newly constructed heavy duty, harsh environment jackups that are it plans to put to use in the Central North Sea, the Middle East, and South East Asian markets this year.
Ensco has a $10 billion of contract revenue backlog, which helps with cash flow visibility, and the PEG for the company is also impressively cheap at only 0.4. What's more is that the company is also one of David Einhorn's high upside stocks (see all five).
All five of these stocks have impressive growth profiles, expected to grow EPS by at least 15% annually over the next five years. The industry diversity of the five is also robust, ranging from a bio-pharma to semiconductors. However, what you would not expect to find in these high-growth prospects is the dividends that they all pay. Couple this with the fact that they all have well covered dividends and these stocks can be considered income and growth opportunities.