A combination of strong growth record and strong earnings growth prospects together with a good yield seems to me a promising formula for a dividend investor.
I introduced in the finviz.com Screener the following demands:
- Dividend Yield - Over 3%
- Payout Ratio - Under 100%
- EPS growth past 5 years - Over 10%
- EPS growth next 5 years - Over 10%
- Sales growth past 5 years - Over 10%
As a result, 12 stocks came out. In this article, I describe three of these stocks which in my opinion can reward an investor a capital gain along a very rich dividend. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from finviz.com and Yahoo Finance, on September 19, 2013, before the market open.
SeaDrill Limited (NYSE:SDRL)
Seadrill Limited provides offshore drilling services to the oil and gas industry worldwide.
Source: company presentation
Seadrill Limited has a very low trailing P/E of 10.08 and a low forward P/E of 13.24. The PEG ratio is extremely low at 0.37. SDRL records strong growth on all key parameters; the average annual sales growth for the past 5 years was very high at 23.60%, the average annual earnings growth for the past 5 years was also very high at 14.50%, and the average annual earnings growth estimates for the next 5 years is very high at 27.55%. The forward annual dividend yield is very high at 5.71%, and the payout ratio is only 58%.
The SDRL stock price is 4.70% above its 20-day simple moving average, 8.36% above its 50-day simple moving average and 22.05% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
On August 28, Seadrill Limited reported its second-quarter financial results, which beat EPS and revenues expectations.
Second Quarter 2013 Highlights
- Seadrill reports its best operating results and net income ever and generated second quarter 2013 EBITDA of US$665 million
- Seadrill reports second quarter 2013 net income of US$1,750 million and earnings per share of US$3.68
- Seadrill increases the ordinary quarterly cash dividend by 3 cents to US$0.91
- Economic utilization for floaters increased to 94% in Q2 2013 from 92% in Q1 2013
- Economic utilization for the jack-up fleet in Q2 2013 was 98%, down from 99% in Q1 2013
- Seadrill secured a three-year contract for the newbuild drillship West Neptune with a total estimated revenue potential of US$662 million
- Seadrill realized a gain of US$1,256 million from the sale of the tender rig division to SapuraKencana Petroleum for a total consideration of US$2.9 billion
- Seadrill completed the sale of the tender rig T-15 to Seadrill Partners LLC (NYSE:SDLP) for a total consideration of US$210 million
- Seadrill ordered two jack-ups for a total estimated project price of US$230 million per rig, with deliveries in 4Q 2015 and 1Q 2016
- Seadrill and SapuraKencana joint project secured an eight year contract for three Pipe Laying Support Vessels with a total estimated revenue potential of US$2.7 billion
- North Atlantic Drilling completes sale and leaseback transaction for the newbuild harsh environment jack-up West Linus for US$600 million
The chart below, which was taken from the company presentation, emphasizes the strong position of Seadrill's fleet in comparison to its competitors.
Seadrill Limited has strong growth record and strong earnings growth prospects, and considering its compelling valuation metrics, and the fact that the stock is in an uptrend, SDRL stock still has room to go up. Furthermore, the very rich dividend represents a gratifying income.
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, a decline in the price of oil and natural gas, and the company huge debt of $12.34 billion.
Sunoco Logistics Partners L.P. (NYSE:SXL)
Sunoco Logistics Partners L.P. engages in the transport, terminaling, and storage of crude oil and refined products in the United States.
Sunoco has a low debt (total debt to equity is only 0.44), and it has a low trailing P/E of 14.71 and a forward P/E of 19.22. The price-to-sales ratio is very low at 0.47, and the average annual earnings growth estimates for the next five years is quite high at 12%. The forward annual dividend yield is at 3.74%, and the payout ratio is at 55%. The annual rate of dividend growth over the past three years was high 10.23%, and over the past five years was also high at 10.61%.
Sunoco has recorded strong revenue, EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.
On August 07, Sunoco Logistics Partners reported its second-quarter financial results. EPS came in at $1.08 a $0.23 better than expectations.
Second Quarter 2013 Highlights
- Distributable cash flow of $184 million for the second quarter 2013
- Twenty-eight percent distribution increase compared to the second quarter 2012
- Ended the quarter with a Debt to Adjusted EBITDA ratio of 2.4x
- Completed a successful open season for the Eaglebine Express crude oil pipeline project
- Commenced an open season for the Granite Wash Extension crude oil pipeline project
Sunoco has consistently raised its distribution, as shown in the chart below.
Source: company presentation
Sunoco has strong growth record and strong earnings growth prospects, and considering its latest quarter strong results, SXL stock can move higher. Furthermore, the rich dividend represents a nice income.
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and a decline in the price of oil.
Lorillard, Inc. (NYSE:LO)
Lorillard, Inc. manufactures and sells cigarettes in the United States.
Lorillard has a low trailing P/E of 14.05 and a very low forward P/E of 12.87. The PEG ratio is quite low at 1.12. Lorillard records strong growth on all key parameters; the average annual sales growth for the past 5 years was high at 10.80%, the average annual earnings growth for the past 5 years was also high at 10.30%, and the average annual earnings growth estimates for the next 5 years is very high at 12.50%. The forward annual dividend yield is high at 4.86%, and the payout ratio is at 68%. The annual rate of dividend growth over the past three years was very high at 18.12% and over the past five years was also high at 13.08%.
The LO stock price is 4.66% above its 20-day simple moving average, 3.18% above its 50-day simple moving average and 9.48% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
On July 25, Lorillard reported its second-quarter results, which beat EPS expectations by $0.01 and was in-line on revenues.
Second Quarter Highlights
- Reported (GAAP) diluted earnings per share increased 15.3% versus last year to $0.83.
- Adjusted (Non-GAAP) diluted earnings per share increased 11.0% versus last year to $0.81.
- Net sales increased 4.2% over last year to $1.804 billion.
- Adjusted (Non-GAAP) operating income increased 8.2% over last year to $529 million.
- Total Lorillard retail market share of cigarettes increased 0.6 share points in the second quarter versus last year to 14.9% driven by Newport Menthol.
- Lorillard received authorization from the FDA to market Newport Non-Menthol Gold.
- blu eCigs achieved net sales of $57 million and over a 40% retail market share.
- Lorillard issued $500 million in new notes and increased its share repurchase authorization to $1 billion.
- Lorillard repurchased 3.9 million shares during the quarter at a cost of $169 million.
Since LO valuation metrics are very low, the company growth prospects are good, and the company is authorized to repurchase an additional $500 million of its outstanding common stock, a capital gain can be expected along the very rich dividend.
Risks to the expected capital gain and to the high dividend payment include; a menthol ban, acceleration of industry volume declines and a worsening of the litigation environment.
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.