S&P recommends overweighting the S&P 500 Consumer Discretionary sector. Year to date through May 25, the sector index, which represented 11.2% of the S&P 500 Index, was up 10.62%, compared with a 4.5% rise for the S&P 500. There are 32 sub-industry indices in this sector, with Restaurants being the largest at 13.8% of the sector’s market value. Foreign exposure should continue to weigh on the group until Europe emerges from recession. We have noted that domestic companies have outperformed multinational companies since mid-August 2011 and we prefer companies with most of their sales in the US.
We have screened across the sector to identify the companies with the best total returns in the past year. These stocks have a dividend yield greater than 3% and increased their dividend in the past year.
Amusement and water park operator Cedar Fair (FUN) has a 1-year total return of 66%. FUN has rebounded from being down in the recession as more people are visiting the parks today. While this is a significant price run up, FUN trades at 11 times next year’s earnings. FUN has a dividend yield of 5.59% which was increased 300% in the past year.
Flexsteel Industries (FLXS) is a designer, manufacturer, importer and marketer of quality upholstered and wood furniture for residential, recreational vehicle, office, hospitality and healthcare markets. All products are distributed nationally. FLXS reported record third quarter net income of $3.3 million or $0.48 per share compared to net income of $2.5 million or $0.35 per share in the prior year quarter, an increase of 36.2%. FLXS has a 1-year total return of 44% but only trades at 10 times next year’s earnings. FLXS just announced that its board approved a 50% increase in the company’s quarterly dividend by declaring a $0.15 per share dividend payable July 2, 2012 to shareholders of record as of June 15, 2012. This is the third increase since March 2009 when the dividend was $0.05 per share. Flexsteel has paid cash dividends on its common stock each year since 1938.
This may be the best time to buy toy maker Mattel (MAT) since its highest earnings are in the second half of the year. MAT dropped a couple dollars following first quarter earnings that were affected by it acquisition costs of buying HIT Entertainment. However, MAT has a 1-year total return of 23%. IT pays a dividend yield of 3.92% and increased its dividend 35% in the past year. Mattel has a track record of outperforming the Standard & Poor’s 500 stock index during times in which credit markets were stressed in Europe’s so-called peripheral countries of Portugal, Spain, Italy and Ireland.
Fast food giant McDonald’s Corp (MCD) has a 1-year total price return of 11.5%. It would be higher but MCD is down 10% in 2012 year to date. MCD was too pricey at $100 per share so the pullback gives investors a better entry place. MCD has been affected by uncertainty in the economy and European sales. However, MCD has been performing well with its addition to healthy choices and it addition of coffee and smoothie drinks. Anytime you get MCD on a pullback, it will be worth the price. MCD has a dividend yield of 3.18% and a 5-year average dividend growth rate of 22%.
Leading media and marketing company Meridith Corporation (MCP) has a 1-year total return of 10%. It’s sales and earnings have been in line with analyst estimates over the last few quarters. Meredith features multiple well-known national brands – including Better Homes and Gardens, Parents, Family Circle, Allrecipes.com, Ladies’ Home Journal, Fitness, More, American Baby, EveryDay with Rachael Ray and FamilyFun – along with local television brands in fast-growing markets. MCP should be purchased for its dividend yield of 4.84% and its 5-year average dividend growth rate of 15%. The dividend is 50 percent higher than a year ago, reflecting a substantial increase on October 25, 2011, that – in conjunction with a new authorization to repurchase $100 million of Meredith stock – builds on Meredith’s commitment to returning cash to shareholders. Meredith has a strong history of paying dividends – 65 consecutive years – and increasing them over time – 19 years straight.