Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. Fast-growing companies usually do not pay dividends because they need to reinvest all the cash they generate back into the business. But it is still possible to find companies with above average growth prospects that do pay dividends.
I have searched for profitable companies with an above average growth prospects that raise their payouts. Those stocks have a better than average chance of beating the market.
I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.
The screen's formula requires all stocks to comply with all following demands:
1. The stock is included in the Russell 3000 index. Russell Investment explanation:
The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.
2. Earnings growth estimates for the next 5 years (per annum) is greater than 10%.
3. Dividend yield is greater than 1.4%.
4. Annual rate of dividend growth over the past five years is greater than 5%.
After running this screen on October 16, 2012 before the market open, I obtained as results the 5 following stocks:
Creicorp Ltd. (BAP)
Credicorp Ltd. provides a range of financial products and services in Peru, Bolivia, and Panama. It offers banking services that consist of handling loans, credit facilities, deposits, and current accounts, and the provision of investment banking services, including corporate finance for corporate and institutional customers, as well as handling deposits, consumer loans, and credit card facilities for individual customers.
Credicorp Ltd. has a low forward P/E of 11.35 and a very low PEG ratio of 0.92. The average annual earnings growth for the past 5 years has been very high at 25.29% and the average annual earnings growth estimates for the next 5 years is quite high at 15%. The forward annual dividend yield is 1.84%. All these factors make the stock quite attractive.
The Brink's Company (BCO)
The Brink's Company engages in the provision of secure transportation, cash logistics, and other security-related services to banks and financial institutions, retailers, government agencies, mints, jewelers, and other commercial operations worldwide.
The Brink's Company has a low forward P/E of 10.63 and a low PEG ratio of 1.14. The average annual earnings growth estimates for the next 5 years is 12% . The forward annual dividend yield is 1.48%. Among the five analysts covering the stock, two rate it a strong buy, two rate it a buy and only one rates it a hold. The BCO stock seems to be a good investment right now.
Newmont Mining Corp. (NEM)
Newmont Mining engages in the acquisition, exploration, and production of gold and copper properties. The company's assets or operations are located in the United States, Australia, Peru, Indonesia, Ghana, New Zealand, and Mexico.
Newmont Mining has a low forward P/E of 10.85 and a PEG ratio of 1.61. The average annual earnings growth estimates for the next 5 years is very high at 59%. The forward annual dividend yield is 2.56%. All these factors make the stock quite attractive.
People's United Financial Inc. (PBCT)
People's United Financial operates as the bank holding company for People's United Bank that provides commercial banking, retail and business banking, and wealth management services to individual, corporate, and municipal customers.
People's United Financial has a forward P/E of 14.55 and a PEG ratio of 1.80. The average annual earnings growth estimates for the next 5 years is 10.68%. The forward annual dividend yield is very high at 5.30%. All these factors make the stock quite attractive.
Yum! Brands, Inc. (YUM)
YUM! Brands, Inc. operates quick service restaurants in the United States and internationally. The company develops, operates, franchises, and licenses a system of restaurants, which prepare, package, and sell various food items, as well as operates Chinese casual dining concept restaurants.
YUM! Brands has a forward P/E of 18.94 and a PEG ratio of 1.56. The average annual earnings growth estimates for the next 5 years is 13.37%. The forward annual dividend yield is 1.89%. Among the 23 analysts covering the stock, seven rate it a strong buy, eight rate it a buy and eight rate it a hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.