3 Attractive Large-Cap Stocks That Have Raised Payouts By At Least 15% A Year For The Last 5 Years

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Includes: BLK, KLAC, NE
by: Arie Goren

Summary

After the retreat in its stock price, it is now an excellent opportunity for a long-term investment in Noble’s stock at a cheap price.

KLA-Tencor will benefit from the rebound in semiconductor manufacturing equipment spending in 2014.

BlackRock’s per share dividend has increased each year except 2009, when it was unchanged, and has grown at a compounded annual rate of 24%.

Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time. I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most crucial factors for dividend-seeking investors.

In this article, I describe three attractive large-cap good-yielding stocks that have raised their payouts at a very high rate for the last five years. In my opinion, these stocks can reward an investor a capital gain along with a gratifying income. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Portfolio123, Yahoo Finance and finviz.com, on March 15.

Noble Corp. (NYSE:NE)

Noble Corporation operates as an offshore drilling contractor for the oil and gas industry. It provides contract drilling services with a fleet of 77 offshore drilling units. Noble Corporation was founded in 1921 and is headquartered in London, the United Kingdom.

Noble's stock has recently significantly declined, and it lost 28% of its value in the last four months. Noble announced its fourth-quarter and full-year 2013 earnings report on January 22, and although EPS at $0.82 was in-line with analysts' expectation, its stock fell 8.6% in the next trading day. Investors' disappointment was caused by the fact that management gave a mild outlook about demand in 2014. After an explosion in demand in the last two years, particularly for ultra-deepwater rigs, CEO David Williams said, "Our industry may be entering a short and arguably useful pause in the cycle."

On February 28, Noble confirmed that the Noble Paul Wolff, a dynamically positioned semisubmersible rig operating off the coast of Brazil, experienced a ballast control incident at the end of February, and it hasn't been operational since, an impairment that costs the company $428,000 a day in contract revenue.

Dividend

Noble has been paying uninterrupted dividends since 2005. The forward annual dividend yield is very high at 5.16%, and the payout ratio only 25%. The annual rate of dividend growth over the past three years was very high at 31.72%, and over the past five years was extremely high at 44.50%.

Valuation

Noble's valuation metrics are extremely advantageous; the enterprise value-to-EBITDA ratio is very low at 6.82, and the stock is trading way below book value; the price to book value is only 0.88. According to Yahoo Finance, NE's next financial year forward P/E is very low at 6.58, and the average annual earnings growth estimates for the next 5 years is high at 18.47%. These give an exceptionally low PEG ratio of 0.36, one of the lowest PEG ratios among S&P 500 companies. The PEG Ratio, the price/earnings to growth ratio, is a widely-used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.

Conclusion

Noble has compelling valuation metrics and strong earnings growth prospects. The company is expanding its fleet; contract drilling revenues continued to grow during the fourth quarter with full or partial contributions from three new ultra-deepwater drillships and the first of its six JU3000N high-specification jackups. Furthermore, the planned spinoff of much of the standard jackup fleet by 2014 year end should add value to shareholders.

I consider Noble as a good combination of a value and growth high-yielding dividend stock, and in my opinion, after the retreat in its stock price, it is now an excellent opportunity for a long-term investment in a good company at a cheap price.

KLA-Tencor Corporation's (NASDAQ:KLAC)

KLA-Tencor Corporation is the world's leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Its products are also used in a number of other high technology industries, including the light emitting diode ("LED") and data storage industries, as well as photovoltaic industries and general materials research.

On January 23, KLA-Tencor reported its second-quarter fiscal 2014 financial results, which beat EPS expectations by $0.05 (6.30%) and beat on revenues.

In the report, Rick Wallace, President and CEO of KLA-Tencor commented:

KLA-Tencor's strong shipments, revenue and earnings during the second quarter demonstrate our market leadership and robust business model. As we begin 2014, the prevailing outlook is for growth in the semiconductor equipment industry, with leading device manufacturers increasing their capital expenditures to adopt complex new device architectures and process technologies at the leading edge. The heightened yield challenges associated with these transitions are driving demand for process control and positioning KLA-Tencor for continued future success as a critical business partner to our customers.

Dividend

KLA-Tencor has been paying uninterrupted dividends since April 2005. The forward annual dividend yield is quite high at 2.70%, and the payout ratio is at 50%. The annual rate of dividend growth over the past three years was very high at 24.91% and over the past five years, was also very high at 24.06%.

Valuation

KLA-Tencor's valuation metrics are very good; the company has a low debt and it is rich in cash; the price-to-cash ratio is only 3.77. According to Yahoo Finance, KLAC's next financial year forward P/E is very low at 14.23, and the average annual earnings growth estimates for the next 5 years is high at 16.4%. These give a very low PEG ratio of 0.87.

Discussion

In my opinion, KLA-Tencor will outperform the worldwide wafer fab equipment [WFE] industry in 2014. According to SEMI.ORG, in its publication of December 03, 2013, worldwide sales of new semiconductor manufacturing equipment will increase in 2014 by 23.2% to $39.46 billion.

KLA-Tencor is poised to benefit from rising capital intensity to be driven by the transition to lower nanometer nodes. The rapid growth of consumer demand for mobile devices, including smartphones, tablets and portable PCs, is currently driving the electronics industry and, as a result, the semiconductor industry as well. Alongside this market growth, the industry continues to witness a high rate of change in technology, with the emergence of new techniques and architectures in production today, such as three-dimensional transistors, advanced patterning lithography and semiconductors with critical dimensions at 28 nanometer and below. Since KLA-Tencor's inspection and measurement technologies play a key role in the new manufacturing processes, a significant increase in the demand for its products can be expected.

Conclusion

As the world's leading manufacturer of yield management and process monitoring systems for the semiconductor industry, KLA-Tencor will benefit from the rebound in semiconductor manufacturing equipment spending in 2014. The company has compelling valuation metrics and strong earnings growth prospects; its PEG ratio is very low at 0.87. Furthermore, KLA-Tencor has a strong balance sheet and a low debt, its Enterprise Value/EBITDA ratio is very low at 10.96.

All these factors lead me to the conclusion that KLAC stock has still plenty of room to move up. Furthermore, the rich growing dividend represents a gratifying income.

BlackRock, Inc. (NYSE:BLK)

BlackRock, Inc. is a publicly owned investment manager. The firm primarily provides its services to institutional, intermediary, and individual investors. It also manages accounts for corporate, public, union and industry pension plans, insurance companies, third-party mutual funds, endowments, foundations, charities, corporations, official institutions, and banks. BlackRock, Inc. was founded in 1988 and is based in New York City with additional offices in Boston, Massachusetts, London, United Kingdom, Brazil, Philadelphia, Pennsylvania, Plainsboro, New Jersey, and San Francisco, California.

On January 16, BlackRock reported its fourth-quarter and full-year 2013 financial results, which beat EPS expectations by $0.59 (13.60%) and beat on revenues. The company reported full year diluted EPS of $16.87, up 22% from 2012. Fourth quarter 2013 diluted EPS of $4.86 was up 24% from the fourth quarter of 2012. Revenue was up 9% from both the full year 2012 and the fourth quarter of 2012, reflecting growth in markets, long-term net inflows and strength in performance fees and BlackRock Solutions.

Dividend

BlackRock, has been paying uninterrupted dividends since September 2003. Since the inception of its dividend, BlackRock's per share dividend has increased each year except 2009, when it was unchanged. The forward annual dividend yield is quite high at 2.61%, and the payout ratio is at 40%. The annual rate of dividend growth over the past three years was very high at 16.75%, and over the past five years, was also very high at 17.44%.

Valuation

BlackRock has recorded strong revenue, EPS and dividend growth, and its valuation metrics are good. According to Yahoo Finance, BLK's next financial year forward P/E is very low at 14.03, and the average annual earnings growth estimates for the next 5 years is high at 14.05%. These give a low PEG ratio of 1.00.

Discussion

2013 was a strong year for BlackRock, with 21% growth in as adjusted EPS and 13% growth in as adjusted operating income, fueled by long-term net inflows of over $117 billion. BlackRock is expanding its business by organic growth and through skilful acquisitions; In July 2013, BlackRock acquired Credit Suisse's ETF business, with $16 billion assets under management. On October 4, 2013, BlackRock acquired a global private equity real estate investment manager, MGPA. As of March 2013, MGPA had around $25 billion of assets under management. The company has been reiterating its commitment to a steady rate of share repurchases; the company purchased about $250 million valued of its shares every quarter in 2013.

Conclusion

BlackRock is generating strong free cash flows, and it is accelerating cash returns to shareholders through buybacks and by growing dividends. BlackRock has good valuation metrics and strong earnings growth prospects; its PEG ratio is low at 1.00. Furthermore, according to Portfolio123, its two-year Sharpe ratio, which measures the ratio of reward to risk, is very high at 1.325, much better than the industry median of 0.933 and S&P 500 median of 0.970.

All these factors lead me to the conclusion that BLK stock is a smart long-term investment. Furthermore, the rich growing dividend represents a gratifying income.

Disclosure: I am long KLAC. 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.