For some investors dividend income is more important than the capital gains and these investors build their portfolios with dividend stocks. We have been trying to find and share some good dividend stocks to add to the knowledge of these investors. In this article, we have tried to find two companies offering dividend yield in the region of 6% with solid growth prospects. Along with the juicy dividend yield, these companies offer considerable upside potential, and both these stocks should be good long-term investments.
Tal International Group
Tal international group (TAL) is involved in leasing of intermodal containers. The stock has a dividend yield of 6.9%. During the last year, the stock gained more than 57%. However, like many other companies, stock fell just as 2014 started. Year to date, the stock is down 23.76%, which gives it a lot more room to grow back. The sell-off was likely due to the investors taking profits because the earnings growth of the company remains strong, and I do not believe the sell-off was due to any concerns about the future profitability of the company.
The company recently announced its annual earnings based on which the company has made remarkable improvement as compared to 2012. Tal managed to increase its earnings per share before tax to $6.41 per share, which represents a 6% increase as compared to pre-tax earnings per share of 2012. The leasing revenues increased by 8.1% in 2013 as compared to 2012 to $567.4 million. The operational performance of the company is outstanding with 97% utilization rate in the fourth quarter of 2013. In addition, the company purchased over $640 million worth of containers which include both new and sale lease back for delivery in 2013. This will bring in increased revenues for 2014 as the company gets business for these containers.
Recently, the company announced a 2% dividend increase, after which its quarterly dividend is now $0.72 and dividend yield of 6.9%. The company has huge growth potential and the stock price should reflect it towards the end of the year as the company capitalizes its business.
Corrections Corporation of America
Corrections Corporation of America (NYSE:CXW) owns and operates detention centers and private prisons. The company manages 67 correction facilities and is the largest in the private sector. The company recently announced its fourth quarterly earnings according to which, its earnings per share was $0.44. On a year-over-year basis, the company could not achieve growth in terms of net income. However, the revenues of the company rose by 8% as compared to 2012. The inability to convert growth in revenues to income indicates that the company experienced increase in its operating expenses.
As the company resolves its issued related with efficiency, we would see increased earnings this year. Also, in 2012, the free cash flows of the company were $204 million. Since the company managed to maintain its earnings, it is safe to assume that free cash flow would be in the same range. Based on this free cash flow, the company can easily pay off its quarterly dividend of $0.48 and still be left with $148.4 million dollars.
Another reason to pick this stock is that the nature of this business is less risky. This allows the company to maintain its previous position should it not achieve any growth. This is exactly what happened in 2013. But the company still managed to maintain its earnings. Due to the poor earnings growth, the stock has been falling and the major banks have been revising the price targets. As a result, income investors have the chance to buy stock at a discounted price as the dividend of the company is not under threat, in my opinion. The stock currently has a dividend yield of 6.4%.
Both of these companies are relatively unknown, but both business models are good and the companies should continue to perform well. These companies pay a substantial chunk of cash flows in dividends - the cash flows for both companies are enough to meet dividend obligations. We believe these two stocks can be good addition to the dividend portfolio of any investor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.