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Although it is only October, the holiday season seems to come earlier and earlier each year. Several companies have announced plans for hiring seasonal help, with stores like Kohls (NYSE:KSS) expecting to add 52,000 seasonal jobs. Many companies are expecting sales for the holiday season to be strong; and with 32 days between Thanksgiving and Christmas, the calendar looks to be an advantage as well. Retailers, like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) have already begun releasing holiday ads and promoting holiday layaway policies to try to lure customers in early. Investors can buy into undervalued dividend-growth stocks now to benefit from long-term growth, as well as a short-term boost from the increased holiday spending.

Costco (NASDAQ:COST)

Costco operates a chain of wholesale membership warehouse stores. The company purchases products direct from manufacturers, and with the volume of purchases it is able to pass along savings to members. The company sells products in categories include groceries, appliances, television and media, automotive, toys, hardware, sporting goods, jewelry, cameras, books, apparel, health and beauty aids, tobacco, furniture and office supplies. A family could likely purchase everything it needs for the holidays, from a Thanksgiving turkey to a Christmas tree, at a single Costco location. The company operates primarily in the U.S. and Puerto Rico with 439 warehouse stores; however, Costco also has a significant international presence with 169 other warehouse stores across Canada, the UK, Mexico, Taiwan, Korea, Japan and Australia.

Shares of Costco have risen 11.4% over the past 12 months, and currently trade at $95 per share. The company trades with a TTM P/E ratio of 24.36, which is at a slight premium to the five-year average of 22.35. Over the past five years, the company has averaged EPS growth of 10.4% CAGR (while revenue has grown at an 8.84% CAGR). In 2011, the company earned $1.4 billion on revenue of $88.9 billion, and the company has very low debt, with a current ratio of 1.14.

Dividend-growth investors have a lot to like with this stock. The company is selling at a slight premium to its five-year average P/E ratio, but growth is expected to outpace that of the last five years. The company saw same-store sales increase 7% for FY '12, and the company intends to open 14 new stores prior to the end of calendar year 2012. Costco currently pays an annualized dividend of $1.10, which equates to a 1.16% yield at today's price. The company is paying out just 13.1% of earnings, and has a five-year dividend growth rate of 13.66%.

Costco is a strong play for long-term dividend growth investors. While the current dividend yield is low, COST has lots of room to increase payments to shareholders going forward. With double-digit earnings growth anticipated in the years ahead, an expanding global footprint, and increasing same-store sales COST should grow its dividend at a rapid rate in the years ahead. In addition to the increasing dividend stream, long-term investors will be rewarded with substantial capital appreciation associated with the increasing earnings per share and growing revenue. To maximize my investment upside, I would consider opening a position if Costco shares were to pull back slightly to $93.35 or below.

Coach Inc. (NYSE:COH)

Coach is a luxury goods manufacturer known best for creating purses and other accessories. The company generates a significant increase in earnings during the quarter including the holiday season. Over the past two years earnings during the holiday season quarter have accounted for 41% and 33% of full-year earnings respectively. Coach products are popular gifts during the holiday season, and it is unlikely that will change this holiday season.

Over the past 12 months COH shares have underperformed significantly, falling 10.5%. Over this same period, COH has increased EPS by 20.8% and revenue has grown by 14.5%. On a valuation basis, the stock is trading slightly below its 5-year average P/E ratio (15.3 current vs. 16.39 5 year average). COH has a 32.5% operating margin, near the top of the industry. Over the next 5 years COH is expected to grow EPS 14%, and COH has very low debt. With a dividend payout ratio of 27% and a current yield of 2.1% the dividend appears to have significant room to grow. Since initiating a dividend payment in June of 2009, the quarterly payment has quadrupled from 7.5 cents to 30 cents.

Coach, the company, has performed exceptionally well over the past 12 months in the face of challenging economic conditions. At the same time, the stock has performed exceedingly poorly. At this time shares of COH appear, to me, to be significantly undervalued. I would consider entering a position in Coach at this time to reap the benefits of a growing dividend and significant potential capital appreciation. I believe Coach shares are undervalued up to $57/share.

*As a note, COH released Q1 earnings before the bell and saw earnings beat expectations, and revenue grow 11% year on year. Shares rose 6% in pre-market trading.

United Parcel Services (NYSE:UPS)

Delivery service stocks like UPS offer Domestic and International shipping, and more recently there has been a push from these companies to expand offerings to include supply chain and freight management services. In addition to shipping and logistics support UPS operates storefront retail outlets that provide shipping and business printing services. Shipping companies experience a rush of business during the holiday season as shipment volumes increase as consumers increasingly shop online and ship presents to family around the world.

UPS may offer the greatest potential upside for investors, but also faces the greatest headwinds. UPS shares have risen just 2.14% over the past 12 months. The company has seen shipment volumes increase marginally year over year (2.9% in Q3), with domestic shipping improving slightly and offsetting a decrease in international shipping. UPS currently trades with a TTM P/E ratio, which is in line with the industry average. Over the past 12 months, UPS has seen EPS decline 3% in the face challenging economic times, but earnings are expected to grow at a 10.9% CAGR for the next five years. The company has a healthy dividend yield of 3.1% ($2.28 annualized), and a payout ratio near 50%. In 2012, the company increased the dividend 9.6% from the 2011 dividend.

UPS faces a number of challenges in the quarters, and years, ahead with a slow growing global economy. UPS has attempted to acquire TNT Express, a Dutch shipper, but is facing concerns from the European Union that a deal of this nature would limit competition on the continent. In September, UPS shares were hurt when competitor FedEX (NYSE:FDX) reported weak guidance for FY13. While UPS has not yet released its most up-to-date FY13 guidance, the company appears to be showing some strength, as Q3 earnings met expectations and revenue came in flat year on year. UPS has the opportunity to begin expanding its presence in China after receiving licensing in September to operate domestic shipping operations in the country.

UPS is a global company operating in a slow growing global economy. While growth may be slow, UPS is well positioned to be a part of that growth. The company has underperformed the market this year, but appears poised to bounce back and provide steady returns to investors in years ahead. The company expects double-digit earnings growth in the years ahead, and should provide investors with strong returns in the form of growing dividends and increased capital as the economy recovers. If the TNT-Express acquisition were to be approved UPS shares could go much higher, as investors have priced in this being rejected. While shares appear to be fairly valued at their current price, I would watch UPS for an additional pullback to $72 before buying in to this stock.

Conclusion

The holiday season is rapidly approaching. Over the coming weeks consumers will begin seeing more and more ads with fake snow and Christmas music trying to lure them to stores to spend their money. For investors, expectations of increased holiday spending could provide an opportunity for long-term gains by identifying companies that stand to benefit most during the holiday season. While the three companies discussed in this article are certainly not the only companies that will benefit, they are priced at or near attractive entry points for long-term dividend growth investors to reap healthy gains over the coming years.

Source: 3 Bargain Dividend-Growth Stocks To Watch This Holiday Season