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By Mike

Some investors sell in May and go away, while others think the current rally can't continue forever. "The stock market is high enough, there is a correction ahead". I guess I'm one of those investors who believes strongly that the rally will continue throughout the rest of the year.

As I wrote in my article "Stock Squeeze! Look For All The Money You Can Invest in The Stock Market", I believe we are in a perfect situation for investors:

  • Money is moving from bonds to equity (pressure on the demand for stocks)

  • Companies' profits keep climbing (so you are not paying for a bubble, but for real cash)

  • Share buyback programs are becoming very popular (even more pressure on the demand for stocks)

  • Dividend yield is higher than the 10 yr bond yield

  • Interest rates to stay put (which means it's easier for companies to manage their debts)

These are the reasons why stocks have climbed so high so far. The interesting part is they are all very true and there is no reason why stocks should slow down. While several companies are riding the wave since the beginning of the year, others are still trailing. I've picked six stocks to be good buys for the upcoming months. Five of them are part of my 2013 Best Dividend Stock portfolio showing an investment return of 19.67% and a dividend yield of 3.05% since the beginning of the year.

1. Chevron (NYSE:CVX)

Chevron's sales growth is very interesting for a mature company operating in a mature business. The #2 player in the world for oil energy shows a very strong dividend record and its business model produces both growth and profitability year after year.

CVX shows a low P/E ratio combined with stable sales and, most importantly, constant dividend growth. If an investor is looking for a relatively safe investment and is looking for a dividend yield over 3%, CVX will quickly fall onto his radar screen. A dividend growth as stable as CVX's is far from being ignored by dividend investors:

(click to enlarge)

I guess the only reason why the stock hasn't surged yet is the overall concern about the global economy. It is true that the barrel of oil has been stagnating for the past two years but Chevron continues to increase its dividend. Since the current payout ratio is under 30%, it is safe to think that many good dividend payouts are to come ahead.

2. Kellogg (NYSE:K)

I like well-diversified companies that show stable growth, can you tell? After a reorganization in 2011 which affected profits, Kellogg seems to be in a great position to meet financial analysts' expectations in 2013. The purchase of Pringles is performing better than expected. Earnings per share are going up slowly but surely and dividend payouts are following the same path. K is another solid stock to build your core portfolio.

On May 1st, Kellogg kept its membership in the "share buyback group" and announced another $1 billion share repurchase program. Sales are expected to grow by 7% while EPS should continue increase by 5 to 7% by the end of 2013. The company is also expecting to raise its dividend by 4.5% in the third quarter of 2013.

3. McDonald's (NYSE:MCD)

Being a dividend aristocrat, MCD has been proving to the stock market that it can continue to show constant growth even in mature markets. The company's presence in emerging markets combined with the renovation of both its restaurants and its menus were key to McDonald's' success.

The stock has been trailing behind the index so far this year due to relatively slow sales growth for the past twelve months (see graph). However, MCD recently announced sales up by 2.6% in May compared to previous year. McDonald's is proud to add various meals to its menus in order to insure growth in a rough global economy.

(click to enlarge)

The company's main challenge remains the consumer eating habits slowly switching to healthier food, but McDonald's' prime business advantage is definitely its restaurant locations. With a dividend payout ratio under 60% (currently standing at 54%), the company has a lot of room to continue increasing its dividend.

4. Wal-Mart (NYSE:WMT)

Wal-Mart's dividend yield may be relatively low (2.46% as at June 10th) but its 7 year dividend growth rate of 14.9% tells you that you will be earning over 3% in dividend yield on your capital soon enough. The stock has been trailing behind most dividend stocks since the beginning of the year and it is still valued at a reasonable price (P/E of 15.06).

The earnings per share, revenues and dividend increases follow accordingly maintaining a more than reasonable payout ratio of a little over 30%

(click to enlarge)

In addition to a healthy business model, Wal-Mart also has a healthy balance sheet. The company is still sitting on a lot of cash and this is why WMT will contribute to this stock squeeze: it has recently announced another $15 billion share buyback program. There is definitely more room for WMT to grow over the upcoming months.

5. Andrew Peller (OTC:ADWPF)

For my two last picks to benefit from the current stock squeeze, I decided to check out the northern side of the border and select two Canadian companies.

Andrew Peller produces, bottles and markets wine in Canada. The best known brands and award winning labels are Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Copper Moon, Calona Vineyards Artists Series and Red Rooster. ADW's main market is Western Canada and Ontario.

Awards, gains in market share and strong sales were the three characteristics for 2012 at Andrew Peller. The EPS is growing faster than the dividend payout, which is always a good thing. A low P/E ratio for a company showing consistent financial metrics is definitely a good indicator.

The stock is showing a year-to-date return of 22%, but it is still traded at a P/E ratio of 12.83 which is relatively low. There is definitely room for this company to continue growing… as we continue to drink more wine.

6. Black Diamond Group (OTC:BDIMF)

Black Diamond Group rents modular structures to provide services and camps for temporary workforces and work structures. Black Diamond also offers a wide variety of oilfield accommodation equipment. The company's services go from temporary offices to full-service lodges. Its slogan makes me smile: "We were HERE before HERE was HERE". Its main market is obviously Western Canada.

Black Diamond focuses on predictable and recurring cash flows from long-term projects. The company is showing high speed growth both in terms of sales and profits. It keeps a relatively high dividend growth policy at the same time as ensuring sales growth. BDI is not limited to oil sand exploitation and seeks to grow its business in the U.S.A. as well. Its fleet size is continuously increasing but its percentage utilization remains over 80%.

The company continues to show strong numbers with slower growth in the oil sand industry. If the demand for this product would grow, BDI will be among companies who will benefit the most.

More to Come

As of today, I'm fully invested in the stock market as I strongly believe in my stock squeeze strategy. There is definitely more room for the stock market to continue going up and break new records. As long as profits are climbing, there is no need to worry. What do you think about these stock picks? Do you hold any of them?

Disclaimer: I hold shares of CVX, MCD.

Source: 6 Dividend Stocks To Buy To Profit From The Stock Squeeze