2 Solid Dividend Picks From Barron's Roundtable

Includes: HFC, IP
by: Bret Jensen

Every year Barron's brings together over a dozen experienced value and macro investors from around the world to a get together. They discuss the world economy and their outlooks for the New Year. They also offer up their best picks for the coming twelve months.

They called this confab the 'Barron's Roundtable' and over several weeks they cover the words and selections of these sages in their weekly magazine. The roundtable has been going on for decades and has a very good track record.

A couple of attractive dividend picks from the Senior Investment Strategist at Goldman Sachs caught my eye in this installment of the Roundtable. Both offer good yields, attractive valuations and little exposure to emerging markets, which were the cause of this week's turmoil in the markets.

Abby Joseph Cohen of Goldman Sachs likes refiner HollyFrontier (NYSE:HFC). She points out that 100% of its refining capacity is in the middle of the country. This gives it easy access to some of the major domestic shale formations like the Bakken that are seeing explosive production growth of light oils.

Ms. Cohen expects the spread between Brent and WTI to be volatile over the coming years but expects the spread to average $10 a barrel or better over that timeframe. She expects the company to earn a bit over $5 a share giving the stock a forward PE of just ~9. The shares also are priced at just over 5 times what HollyFrontier earned in 2012.

One of the most attractive parts of the investment story of HollyFrontier is its dividend. At current prices, the stock yields just under seven percent based on its payouts in 2013. The company has a solid balance sheet with almost $1B (~10% of market capitalization) in net cash on the balance sheet. The stock is offering an attractive entry point as it is down ~20% from its highs in 2013 and has no exposure to emerging markets.

Her other attractive dividend pick is International Paper (NYSE:IP) which is the leading domestic maker of container board as well as corrugated boxes. The company should benefit from an economy that is expected to accelerate to 3% GDP growth in 2013 as well as a continuing recovery in the housing market. Increased online shopping also is a tailwind - AKA, those boxes from Amazon (NASDAQ:AMZN).

The shares only yield just under three percent (2.9%) but Ms. Cohen expects the company to provide a solid dividend payout hike this year as the consensus earnings estimates calls for better than a 30% increase in earnings this year to ~$4.20 a share.

This might prove conservative as the company has significantly beat earnings estimates each of the past two quarters. The stock sells for less than 11x forward earnings, a discount to its five year average (18.4). IP also has a five year projected PEG of under 1 (.73). The mean price target on IP by the 16 analysts that cover the shares is $55 a share, more than 20% above the current price target.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IP over 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.