These 6 Stocks Already Yielding 3% Still Offer A Strong Growth Forecast

Includes: AIV, KMI, LEG, LO, MCHP, WM
by: Dave Dierking

Most people invested in the stock market in 2013 saw their account balances grow due to share price appreciation. In this type of environment, it's easy to neglect the return you get from the dividends that stocks can pay. Dividends could become more en vogue in 2014 as investors are unsure of the direction of the stock market following such a big run up. Good values are a bit more difficult to find than they were 12 months ago but some searching shows that there are still stocks that have growth potential and a great dividend to boot.

As a baseline, I did a simple search looking for stocks with at least a 3% dividend yield and forecasted annual growth of at least 10%. From that list, I looked for the companies that offered the best fundamental profile. With that in mind, here are seven stocks that meet these criteria that could do well in 2014.

Microchip Technology (NASDAQ:MCHP)

Dividend Yield - 3.2%

Earnings Growth Forecast - 10%

The semiconductor company enjoyed a solid 2013 and is poised for further gains in 2014. Revenue growth is forecasted to be up 19% in 2014 and another 8% in 2015 as it continues to make significant capital investments to develop its technology. At a forward P/E ratio of 16 it doesn't seem excessively valued considering its growth profile and the company has consistently beat earnings expectations over the last several quarters.

The dividend payout has remained constant for the last five years but the company has a history of maintaining or raising the dividend steadily since it began paying one out 11 years ago.

Waste Management (NYSE:WM)

Dividend Yield - 3.3%

Earnings Growth Forecast - 11%

Waste Management continues to be a steady performer growing revenue at a 3-4% annual clip as the company continues to excel at its recycling business by turning millions of tons of waste product into multiple ongoing power resources. The company delivered 36% year over year net income growth in the third quarter and its forward P/E ratio of 18 is actually below the industry average of 21.

If you want a solid yet growing dividend you won't find much better than this stock. Waste Management has been raising the dividend annually for the last decade and has grown it over 35% in just the last five years.

Lorillard (NYSE:LO)

Dividend Yield - 4.4%

Earnings Growth Forecast - 10%

The cigarette industry continues to be a cash cow and Lorillard has managed to grow revenues at an 8-10% rate annually. With the traditional cigarette market facing increased regulation, the company's greatest growth potential lies in the emerging e-cigarette market. In what is estimated to be a multi-billion industry over the next several years, Lorillard already has a significant market share and is continuing to invest in order to be the dominant player in the space.

Lorillard has only been paying a dividend for the last five years but it's already pushed the yield past 4%. At a payout ratio of just 68%, the dividend on this stock should continue to have room to grow.

Apartment Investment & Management (NYSE:AIV)

Dividend Yield - 3.7%

Earnings Growth Forecast - 10%

The apartment operator like most REITs will always be an interest rate sensitive and could face downward pressure in a rising interest rate environment but demand for apartment properties specifically has been good. At a forward P/E of 12 it remains attractively valued relative to other REITs.

REITs can often see some irregular dividend payouts as was seen around the time of the financial crisis but AIV has been slowly and steadily raising the dividend for the last four years. Its post-financial crisis dividend of $0.10 has more than doubled to $0.24 in just three years.

Kinder Morgan (NYSE:KMI)

Dividend Yield - 4.6%

Earnings Growth Forecast - 25%

Kinder Morgan is primarily a natural gas producer that stands to benefit from the North American energy boom. As prices remain cheap, demand for its natural gas remains high as it expands its infrastructure to take advantage of the growing demand in the shale oil space. Kinder should be able to improve its fee income as demand should remain high and that income should then get returned to shareholders.

Kinder is a holding company for Kinder Morgan Energy Partners (NYSE:KMP) and El Paso Pipeline Partners (NYSE:EPB) designed to distribute income and thus far it has done very well. The stock is fairly new to the dividend game but it's already over doubled the payout in the last two years and continues to increase it.

Leggett & Platt (NYSE:LEG)

Dividend Yield - 3.9%

Earnings Growth Forecast - 15%

The furniture maker is a very mature business that has steadily grown the company and returned value to its shareholders. Revenue has grown in the low single digits lately, it generates significant free cash flow and with a price to sales ratio just over 1 it sits at a fair value.

It's this cash flow that allows the company to reward its shareholders. In addition to a dividend yield of almost 4% the company has a recent history of buying back its shares providing additional value to investors. With a decades long dividend history and payout ratio of 65% this is a dividend that should continue for the foreseeable future.


While the stock market historically has performed well in the year following a big market run up, a return to more conservative dividend paying stocks may be in the cards for 2014. Each of the companies listed provide not only a yield of 3% or more, they also provide a reasonable valuation along with the potential for solid earnings and revenue growth.

Those are always the types of stocks you want in your portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

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