The gains that have been realized in the stock market this year have had many stocks pushing 52-week highs. It is getting harder to find stocks that have room to rise, let alone offer a dividend along with this potential for growth. The following five stocks offer hope for some share price growth and offer dividends to help shelter investors from any further slide. All of these companies have experienced plenty of success in the past, and at these current valuations, they can offer compelling buys. Sure some of these industries have been in slumps, but the economy seems to be improving, the prices are right for buying and the dividends can help compensate for any risk.
Freeport-McMoRan Copper & Gold Inc. (FCX)
Freeport-McMoRan is involved in the exploration of mineral resource properties like copper, gold, molybdenum, cobalt, silver and other minerals such as rhenium and magnetite. Problems at Freeport-McMoRan's Grasberg mine in Indonesia have led to a shutdown of the world's second largest copper mine, and a potential rebound in the price of copper from its lowest level in three weeks. This shutdown is the result of an independent probe into an accident that killed 28 people and is now disrupting copper output to the tune of 680 tons a day. This is a significant amount of copper missing from the world's supply, and couple this with a 21% monthly increase in China's imports of copper and copper products from a month earlier in May, and copper prices should start to come up. Another positive for Freeport-McMoRan is that they have diversified into oil and gas by completing two recent deals. These two issues with copper should help inflate the price and lead to better margins, while the new acquisitions should help stabilize Freeport-McMoRan's revenues in the future.
In the meantime, Freeport-McMoRan's stock ($30.88 a share, June 10th) has been beaten down to new lows in 2013, and is currently experiencing a light rebound from a 52-week low of $27.24 on April 18th of this year. The stock has room to climb, with a 52-week high of $43.65 a share and a 200-day moving average of $33.09 a share. The P/E ratio is 10.06 and the EPS is 3.07 for a stock that offers a 4.0% dividend yield with a payout ratio of only 41%. Even analysts are pretty high on the stock, with eleven out of seventeen analysts rating FCX either a buy or strong buy. Freeport-McMoRan has stable revenue ($4.5 billion per quarter) and cash on hand that just about matches the debt, and even about $18 billion in stockholder equity. The dividend appears to be very stable, the stock looks like it is priced right and the Grasberg mine shutdown might just be the impetus needed to increase profit margins when the mine starts back up.
American Eagle (AEO)
Trends in clothing can change from year to year, but some companies tend to have more success with promoting their brand name on relatively basic designs of clothing. Clothing from Abercrombie and Fitch, Hollister and American Eagle often take simple designs that use logos and brand development to create sales on an international level. Much like Abercrombie, American Eagle has taken the steps to expand beyond the US and had 49 franchised stores in 13 countries at the start of February earlier this year. American Eagle has built a reputation by targeting young adults with trendy clothes that are more reasonably priced. This affordability could help them expand into regions where Abercrombie and Fitch is already well placed and maybe even regions where Abercrombie might be too overpriced.
While Abercrombie's aggressive expansion might have hurt them in terms of comparable store sales, similar American Eagle sales fell by only 5%, and they have also managed to have a lower store closure rate while continuing with expansion efforts. Although retail is risky at this time, American Eagle's stock is well priced to climb when this marketplace makes a comeback.
AEO stock is currently priced at $19.27 a share (June 11) and is just below the 50-day moving average of $19.54 and 200-day moving average of $20.03 a share. American Eagle's stock is close to its 52-week low of $18.02 a share and has plenty of room to rise, with a 52-week high of $23.94 a share. Buying this stock now comes with a nice dividend yield for this industry of 2.50%, which is a full percent higher than Abercrombie's while also having better potential for growth. The P/E ratio of 17.45 and EPS of 1.10 are pretty much in line for American Eagle's position in this industry, with a pretty solid PEG ratio of 1.20. The high dividend might be hard to grow as the payout ratio has reached 178%, but American Eagle is debt free and the company does have almost $500 million in cash reserves. American Eagle has sound fundamentals, a brand that is trendy and should benefit more from its reasonable prices as it expands globally.
Kinder Morgan Energy Partners, L.P. (KMP)
Kinder Morgan recently received some bad news as west coast refiners informed them that they were not interested in receiving oil from its proposed Freedom pipeline that would link California to the Permian basin shale play in Texas. This blow has been viewed as a bump in the road to a company with a market cap of $31.38 billion, but nonetheless, has affected its stock and created a buying opportunity for Kinder Morgan's stock. Kinder Morgan offers several reasons to jump on board. The pressure to continue exploring ways to achieve domestic oil dependence is paramount to go along with a reliable income stream and high barriers to entry for competition, giving Kinder Morgan stability for the future. Kinder Morgan operates by moving oil around, and is more immune to fluctuations in the price of oil. As long as demand is high, Kinder Morgan's products and services will be in demand too.
In an effort to expand its Terminals business segment, Kinder Morgan embarked on a new business of owning, leasing and purchasing natural resource properties and infrastructure aimed at focusing on coal and other minerals. This will allow Kinder Morgan to lease these assets and shield itself from high operating costs and any price fluctuations with these commodities acting to not only increase but also further stabilize Kinder Morgan's revenues.
Losing out on the $2 billion Freedom pipeline creates a good buying opportunity for a stock that has a dividend payment with a yield currently at 6.10%. Kinder Morgan's stock was priced at $88.93 on May 22nd just a few weeks ago and fell 7.3% to where it stands today at $82.40 a share (June 11th). The 200-day and 50-day moving averages are $86.17 and $87.46 a share respectively to go along with a 52-week high of $92.99 a share. There is plenty of room for the stock to rebound. Kinder Morgan has had three straight quarters of solid growth and profits that match that growth. The enterprise value is calculated to be $51.06 billion, while the market cap is currently $31.38 billion offering investors good value. Kinder Morgan's weakness is a P/E ratio of 74.10 and a payout ratio of 4,527%. Things have to change to sustain the nice dividend payment, but the prospects for growth and ability to make money still make this a good time to consider Kinder Morgan at its current valuation.
France Telecom (FTE)
Sure, there is a slowdown in Europe, and new French carrier Iliad has come in to put pressure on France Telecom with its low costs, but this is the lowest the stock has been since 2002. France Telecom has been cutting costs and continues to make more moves to improve its bottom line. France Telecom still has its Orange division that focuses on business services in the European Union and the Africa/Middle East regions, with the later experiencing some robust growth. They still have around 230 million customers and have increased their customer base by 2.3% during the year that ended on March 31st. The company has not stayed put, continuing to roll out its 4G service and Business Together as a Service program, offered through Orange, but Iliad has proven to be a worthy competitor. Its low cost phone plans have taken some customers away, but leave it continually operating with a loss. The sluggish economy in France does little to help France Telecom out, but Iliad, which uses much of France Telecom's infrastructure, can only go so long losing money and not raising rates. France Telecom is about to take on the Orange name, and that alone might help push the stock back into positive light.
FTE's stock has been on a steady decline through the years bouncing just a bit every now and then. About two years ago near the end of May, the shares were priced at $22.57 and have fallen ever since. The current price of $9.94 a share is a far cry from this valuation, but represents a value to investors looking to get on board. Despite the negativity surrounding the stock, FTE still pays out a dividend with a yield of 14.8%. The dividend might not stay at this level, but France Telecom is committed to keeping it at about $1.00 a share, which currently still would come in at a healthy 10% yield. As you might gather, the books are not great, with revenues slipping and profit hard to come by, not to mention well over $50 billion in debt, but these things appear to already be built into the stock price. In a market that has plenty of stocks closer to 52-week highs, FTE has the support of the French government, a current valuation that has more room to go up than down and a nice dividend to keep investors from panicking if it does sink further still.
Caterpillar Inc. (CAT)
Caterpillar has had its share of challenges, but most of these have been overcome and are reflected in its current stock price. As the world economy starts to pick up, the demand for raw materials will increase and then heavy construction projects and equipment should follow closely behind. According to a recent report outlining the results of an Ernst & Young study polling 1,600 executives from 50 different countries, 54% of them look forward to increased capital planning during the middle part of this year. This compares favorably with the 44% result from October of last year. This means that heavy equipment such as the type of products produced by Caterpillar, should be one of the beneficiaries of these plans to make purchases.
Caterpillar has already been quick to respond to the slowdown in the mining industry by reducing inventory levels and lowering production to help shield itself from the slump. Right now, any uptick in construction and increase in the price of mining commodities such as gold, silver and copper should propel Caterpillar to new growth. This will be a welcome tonic to help cure the first quarter blues.
Caterpillar's stock has fallen along with revenue to $83.52 a share (June 11th), despite efforts to keep profit pretty much in check. This share price is down 3.73% from a year ago despite the S&P 500 surge of over 24% during this same period of time. The 50-day moving average is $86.23 and 200-day moving average is $89.24 a share, shedding light on how much Caterpillar's stock has fallen this year. This drop in valuation has managed to prop up the stock's dividend yield, which currently stands at 2.5%, which is great for this sector. The $27 billion debt is quite large, but there is still $18.3 billion in total stockholder equity and plenty of profit to maintain the 27% payout ratio to support the dividend payments and any future dividend growth. Caterpillar has a nice P/E ratio of 11.26 to go along with a solid EPS of 7.42 and is no stranger to making money. The bottom of the mining industry might have been reached and more than likely Caterpillar's stock slide along with it. This might be the right time to consider a buy.
There is still a pretty good amount of risk with each of these stocks, but an improving economy could easily cure all ills. The fact that each of these companies offers a dividend to investors is a testament to each company's strength. Their brands are strong, business models are solid and abilities to generate revenue unquestioned. Their rough spots and current difficulties can easily be turned into your gains, and if any gains don't happen soon enough, you can at least enjoy the dividends.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.