When making investment decisions I tend to take on a great amount of risk, but that risk is very important to hedge. I like to choose stocks that are not very volatile (with beta less than 1) and have promising growth potential. I ran a screen on stocks with less than one beta and have greater than ten percent EPS quarterly growth along with revenue quarterly growth. However, this was not enough to catch my attention. One popular method of investing, and rightfully so, is income investing. I further narrowed down my search to stocks that have a dividend yield greater than four percent annually and a rock solid future.
Below are four stocks that I believe will perform exceptionally well this year and in years to come. As shaky as the markets were in 2011, the vicissitudes of the markets have created great buy potentials for 2012; below are solid choices with limited risk.
Capstead Mortgage Corporation (CMO) operates as a self-managed real estate investment trust (REIT). The current market price is $12.56 with an EPS of 1.72 and P/E of 7.31x is at the low end of its 5-year range (lowest 4.3 to highest 96.7). The last four dividend payments were $0.41 on March 29, 2011, $0.48 June 28, 2011, $0.44 September 28, 2011, and $0.43 December 28, 2011 respectively. This yields 13.8% yearly with an above average payout ratio of 100% and a five-year average dividend yield of 10%.
CMO has a beta of 0.45, quarterly revenue growth of 66.20% (yoy) and quarterly earnings growth of 73.20% (yoy). CMO has a one-year return of -1%, which compares very well compared to its peers: AER -20.3%, TWO -6.6%, CXS -20.3%, and NCT -30.9%.
Also, Capstead Mortgage’s debt-to-capital of 9.4% is substantially below the Specialty Financials Industry average of 60.8%. CMO has a book value per share of $12.54 which is in line with the market price. The ROE of 13.39% and ROA of 1.46%, however, represent a good value and investment opportunity. The stock is not volatile and offers an excellent dividend yield. It would be foolish not to consider this investment.
Energy Transfer Equity, L.P. (ETE) is a limited partnership company. The company has two segments: Investment in ETP and Investment in Regency. ETP injects and holds natural gas in its Bammel storage facility. During year ending December, 31, 2010, ETP completed construction of Fayetteville Express pipeline, approximately a 185-mile natural gas pipeline. In September 2010, Regency acquired Zephyr Gas Services, LLC. The current market price is $40.34 with a one-year analyst price target of $45. This represents an 11.55% upside potential. Revenue growth (yoy) is 32.10% and current EPS is 1.33 with a P/E of 30.44x.
ETE has a beta of 0.5, which shows low volatility. This, combined with a great dividend yield of 6.2%, shows a great buy opportunity for income investing. The last four dividend payments were $0.54 on February 3, 2011, $0.56 on May 4, 2011, $0.63 on August 3, 2011, and $0.63 on November 3, 2011 respectively. The dividend payout ratio of 168% and a five-year average dividend yield of 6.4% shows a history of payments adding further value to this stock.
ETE's ROE of 7.98% is the highest within its Natural Gas Utilities Industry. The trailing P/E of 30.44 represents a 14% premium to its five-year average of 26.3 and forward P/E of 20.5 represents a 15% premium to its 5-year average of 17.8. I believe this signals a bullish trend and a great buy opportunity.
Technical indicators that represent an upward pattern include: an upward chart pattern, bullish relative strength, and a rising 50-day and 200-day moving average. Overall, this is a great pick with relatively low volatility and high dividend yield.
Novartis AG (NVS) provides healthcare solutions. The company's portfolio includes medicines, preventive vaccines and diagnostic tools, generic pharmaceuticals and consumer health products. The current market price is $57.63 with a one-year analyst price target of $66.59. This represents a 15.55% upside potential and a 4-star S&P rating.
NVS has a beta of 0.71 and a dividend yield of 4.13%. Quarterly revenue growth is 17.30% (yoy) and quarterly earnings growth is 8.30% (yoy). Novartis has a five-year EPS growth rate of 11.18%, which beats the industry average of 1.51% and its Healthcare sector with 7.61%. I like the fact that this company has a history of performance and also the company has a huge portfolio of products and is not dependent on any single product to drive its growth.
Novartis has equity and sales growth for eight years in a row with no signs of a slowdown. The key driver includes China, whose sales are expected to grow around 25% in 2012.
Also, compared to its peers NVS has performed fairly well. Return on revenue is 19% compared to the big names Merk (MRK) at 2.1% and Pfizer (PFE) at 12.2%. Quarterly revenue growth for MRK is 8.10% and PFE has 7.5% compared to NVS’s 17.3. NVS has a net income of 10.11B, this compares very well with its peers as well: MRK has 4.22B and PFE has a net income of 10.18B.
Overall, Novartis has very good earnings growth and performs in-line or better than its peers in nearly all categories. NVS provides a great opportunity for income investors seeking low volatility making it a great choice.
Sunoco Logistics Partners L.P. (SXL) owns and operates a logistics business, consisting of a geographically diverse portfolio of complementary pipeline, terminalling, and crude oil acquisition and marketing assets. The current market price is $38.46 with an EPS of 2.42 and P/E of 15.91x.
SXL has an extremely low beta of 0.03, which shows tremendously low volatility compared to the market. This, combined with a dividend yield of 4.2% with a 66% payout ratio, shows a great buy opportunity for income investors. The last four dividend payments were $0.39 on February 4, 2011, $0.40 on May 5, 2011, $0.41 on August 4, 2011, and $0.41 on November 4, 2011 respectively. The five-year dividend yield of 6.70% shows a consistent dividend for those looking for relatively safe dividend payments.
SXL has a five-year EPS growth rate of 31.78% compared to its Oil Well Services & Equipment Industry at 11.36% and Energy Sector at a mere 3.12%. Also compared to its direct peers, SXL has a quarterly revenue growth (yoy) of 51.8%: EPD has 40.40% and PAA has 37.8%. Furthermore, SXL has a one-year return of 41.4% compared to its peer average of 18.4%, not to mention days sales in inventory of 3.7 is substantially shorter than the Oil & Gas Transportation Industry average of 21.0.
Currently, SXL's 1.2 forward PEG is at the low end of its 5-year range (lowest 0.9 to highest 4.9) and based on trailing P/E, SXL currently trades at a 57% discount to its Oil & Gas Transportation Industry peers. This represents a great buy opportunity at the current price-dividend scenario.
I trust that higher crude oil prices and the demand for energy infrastructure will benefit this company in the coming years. Oil prices are expected to rise, therefore earnings and cash flow for the entire sector will see a rise in capital expenditure. SXL is a solid choice for income investors seeking relatively low risk with consistent dividend payments. This 4-star S&P stock is no stranger to growth, making it an excellent choice.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.