Attractively Priced Dividend Growers With A Very Low Payout

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 |  Includes: AGU, DFS, HP, UNH
by: Arie Goren

I have searched for profitable companies with dividend yield and dividend growth rates greater than their industry averages. Those companies would also have to show good earnings growth prospects, and their last five years earnings growth should be greater than their industries' earnings growth.

I used the Portfolio123's powerful screener to perform the search. The screen's formula requires all stocks to comply with all following demands:

  1. The stock does not trade over-the-counter (OTC).
  2. Market cap is greater than $100 million.
  3. Price is greater than 1.00.
  4. Dividend yield is greater than the dividend yield of the industry.
  5. The payout ratio is less than 100%.
  6. The annual rate of dividend growth over the past five years is greater than 5%.
  7. The annual rate of dividend growth over the past five years is greater than the dividend growth of the industry.
  8. Average annual earnings growth estimates for the next 5 years is greater than 5%.
  9. Average annual earnings growth for the past 5 years is greater than the average annual earnings growth of the industry.
  10. The twenty stocks with the lowest payout ratio among all the stocks that complied with the first nine demands.

As a result, twenty stocks came out, as shown in the charts below. In this article, I describe the first four stocks. In my opinion, these stocks can reward an investor a significant capital gain along with an income. I recommend readers to use this list of stocks as a basis for further research. All the data for this article were taken from Yahoo Finance, Portfolio123 and finviz.com, on November 20, before the market open.

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Helmerich & Payne Inc. (NYSE:HP)

Helmerich & Payne, Inc. engages in the contract drilling of oil and gas wells.

See my article from November 15, 2013 for further analysis.

HP Dividend Chart

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Chart: finviz.com

Discover Financial Services (NYSE:DFS)

Discover Financial Services, a bank holding company, provides direct banking and payment services in the United States.

Discover Financial Services has a very low trailing P/E of 10.10 and a very low forward P/E of 10.18. The PEG ratio is at 1.24, and the average annual earnings growth estimates for the next five years is at 8.14%. The forward annual dividend yield is at 1.55%, and the payout ratio is only 15.70%. The annual rate of dividend growth over the past five years was very high at 22.40%.

The DFS stock price is 0.48% above its 50-day simple moving average and 9.94% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

Analysts recommend the stock. Among the 25 analysts covering the stock, eleven rate it as a strong buy, nine rate it as a buy, and five rate it as a hold.

Discover Financial Services 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 tables below.

On October 21, Discover Financial Services reported its third-quarter financial results, which missed EPS expectations by $0.01. The company reported net income of $593 million or $1.20 per diluted share for the third quarter of 2013, as compared to $637 million or $1.24 per diluted share for the third quarter of 2012. The third quarter of 2013 included a $42 million reserve build while the third quarter of 2012 included a $167 million reserve release. The company's return on equity for the third quarter of 2013 was 23%.

Third Quarter Highlights

  • Total loans grew $3.1 billion, or 5%, from the prior year to $62.7 billion.
  • Credit card loans grew $1.9 billion, or 4%, to $50.4 billion and Discover card sales volume increased 3% from the prior year.
  • Credit card net charge-offs reached historic lows with a net charge-off rate of 2.05%. Credit card loan delinquencies over 30 days past due increased 9 basis points from the prior quarter to 1.67%.
  • Payment Services pretax income was down $20 million from the prior year to $28 million.

In the report, David Nelms, chairman and CEO of Discover said:

Discover's card loan growth continues to exceed industry growth while charge-offs achieved new record lows. During the quarter we launched Discover Home Equity Loans as we continue to expand our direct banking product suite to more broadly serve consumer needs.

Discover Financial Services has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics, and its good earnings growth prospects, DFS stock still has room to go up. Furthermore, the solid growing dividend represents a nice income.

DFS Dividend Chart

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Chart: finviz.com

Agrium Inc. (NYSE:AGU)

Agrium Inc. engages in the retail of agricultural products and services.

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Source: company presentation

Agrium has a low debt (total debt to equity is only 0.48), and it has a very low trailing P/E of 9.77 and a very low forward P/E of 11.21. The price-to-sales ratio is very low at 0.81, and the average annual earnings growth estimates for the next five years is at 1.80%. The forward annual dividend yield is quite high at 3.37%, and the payout ratio is only 16.40%. The annual rate of dividend growth over the past five years was very high at 88.6%.

Agrium has recorded strong revenue, EPS and dividend growth, during the last three years and the last five years, as shown in the table below.

Agrium's return on capital has been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.

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Most of Agrium's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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Source: Portfolio123

The chart below emphasizes Agrium's seed business strong growth prospects.

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Source: company presentation

On November 05, Agrium reported its third-quarter financial results, which missed EPS expectations by $0.07. The company reported consolidated net earnings of $76-million ($0.52 diluted earnings per share) for the third quarter of 2013, compared with net earnings of $129-million in the third quarter of 2012 ($0.80 diluted earnings per share). In the report, Mike Wilson, Agrium's President and CEO, commented:

Agrium's Retail business unit had one of its strongest third quarters on record, with EBITDA2 of $147-million. This was driven largely by high usage of crop protection products and related application services in our North American market. The late growing season in North America, combined with uncertainty in the fertilizer markets caused many customers to delay crop nutrient purchases.

Also in the report, Agrium provided guidance for the fourth quarter of 2013 of $0.80 to $1.25 diluted earnings per share.

Agrium has recorded strong revenue, EPS and dividend growth, and considering its good valuation metrics, AGU stock can move higher. Furthermore, the rich growing 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 agriculture products.

AGU Dividend Chart

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Chart: finviz.com

UnitedHealth Group Incorporated (NYSE:UNH)

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

UnitedHealth has a low trailing P/E of 13.54 and a very low forward P/E of 12.61. The price-to-sales ratio is very low at 0.61, and the price to free cash flow is also very low at 13.36. The average annual earnings growth estimates for the next five years is at 7.45%. The forward annual dividend yield is at 1.56%, and the payout ratio is only 18.40%. The annual rate of dividend growth over the past five years was very high at 92.8%.

The UNH stock price is 3.28% above its 20-day simple moving average, 0.37% above its 50-day simple moving average and 10.04% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Analysts recommend the stock. Among the 21 analysts covering the stock, ten rate it as a strong buy, nine rate it as a buy, and only two rate it as a hold.

UnitedHealth has recorded strong revenue, EPS and dividend growth, during the last three years and the last five years, as shown in the table below.

Most of UnitedHealth's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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On October 17, UnitedHealth reported its third-quarter financial results, which was in-line with EPS expectations. The Company tightened its outlook for full year 2013 net earnings to $5.40 to $5.50 per share on annual revenues expected to reach $122 billion, representing double-digit percentage year-over-year growth.

Third-Quarter Highlights

  • Quarterly Revenues of $30.6 Billion Grew 12% Year-Over-Year
  • Optum Revenues of $9.6 Billion Grew 33%; Optum Operating Earnings Grew 54% Year-Over-Year
  • UnitedHealthcare Served 275,000 More People in the Quarter and 4.35 Million More Year-to-Date
  • Third Quarter Net Earnings were $1.53 Per Share, with Cash Flows from Operations of $3.4 Billion

UnitedHealth has compelling valuation metrics, and solid earnings growth prospects, and considering the fact that the stock is in an uptrend, UNH stock can move higher. Furthermore, the solid growing dividend represents a nice income.

UNH Dividend Chart

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Chart: finviz.com

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.