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3 Dividend Stocks for a Weak Market

In recent weeks, the bears are starting to get the upper hand.  The S&P 500 may have problems keeping its 20% return year to date.  Investors should get more cautious with their stock holdings.  We believe that when pullbacks happen, dividend stocks fare better than others because their yields provide downside protection.  Then, how about stocks that have a current yield above 3.5%, have 10% earnings per share growth projections and have prices that are up more than 10% in the past 13 weeks.

Income provides a return when the market is vacillating on its next direction.  Add this to stocks in an uptrend and with projected growth, investors should be positioned for above market returns in the coming months.  Here are three stocks to watch;

Orchids Paper Products (TIS) has a high dividend yield of 5.05%.  The stock is up 15.9% in the last 13 weeks.  EPS is projected to increase 9.7% next year compared to this year.  Orchids provided investors with dividend increases in both the 1st quarter and 2nd quarter.  The company has increased dividends 75% in the past year.

Orchids Paper is a small cap with only $220 million in market cap.  The company established a new quarterly record for both total net sales and converted product net sales of $29.2 million and $27.8 million, respectively.  Net income per share for the second quarter 2013 was $0.39 per diluted share compared with $0.29 per diluted share in the same period in 2012.

 

Company efforts in new product development continue to enhance their product offering line-up for the mid and premium-tier markets which continues to resonate well with the market and is the major driver of recent business growth.

First Call has a strong buy recommendation with a 1.3 stock rating.

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Bank holding company UMPQUA Holdings (UMPQ) has a high dividend yield of 3.58%.  The stock is up 23.3% in the last 13 weeks.  EPS is projected to increase 10.1% next year compared to this year.  UMPQUA provided investors with dividend increases in both the 1st quarter and 2nd quarter.  The company has increased dividends 67% in the past year.

The Company had second quarter 2013 net earnings of $26.1 million, or $0.23 per diluted common share, compared to net earnings of $23.2 million, or $0.21per diluted common share for the first quarter of 2013, and $23.1 million, or $0.21 per diluted common share, for the same period in the prior year.

For the six months ended June 30, 2013, the Company reported net earnings of $49.2 million, or $0.44per diluted common share, compared to net earnings of $48.5 million, or $0.43 per diluted common share for the same period of the prior year.

It was another solid quarter for Umpqua, highlighted by strong earnings, increasing capital returns to shareholders, continued loan growth and the Financial Pacific Leasing acquisition. Umpqua Bank’s acquisition of FinPac which closed on July 1, 2013, has expected earnings accretion of at least 14% in the first full year.

Valassis Communications (VCI) has a high dividend yield of 4.35%.  The stock is up 13.1% in the last 13 weeks.  EPS is projected to increase 11.6% next year compared to this year.  Valassis started paying dividends to investors in the 4th quarter of 2012.  The Company expects to use approximately 35-40% of free cash flow* for stock repurchases during 2013.

Valassis, which sells space for advertising and coupons in its four-color booklets, reported a profit of $26.8 million, or $0.68 a share, compared with $21.7 million, or $0.51 a share, a year earlier.  Valassis’ second-quarter profit jumped 24% as the company came up against a year-earlier period bogged down by large one-time charges, while core earnings fell below analyst estimates.

Based on the current plan and outlook, the Company reiterated full-year 2013 guidance with earnings per share between $3.05 and $3.20,  adjusted EBITDA of between $290.0 million and $300.0 million, and capital expenditures of approximately $25 million.

Oaktree has Record Earnings and a Double-Digit Dividend Yield

Following 2013 results that represent record highs for any quarter or six-month period in the Company’s history, Oaktree Capital Group, LLC (OAK) is an income investment for both growth and high income.  The stock just recorded a 63% increase in revenues and has a current dividend yield of 11.1%.  In this case, it is better to buy the stock of Oaktree Capital than to buy the closed-end funds it operates.

Oaktree Capital is a leading global investment management firm focused on alternative markets, with $76.4 billion in assets under management as of June 30, 2013.  The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities.

In the second quarter of 2013, adjusted net income rose $131.5 million, to $297.0 million from $165.5 million in the second quarter of 2012, on a $214.0 million increase in total segment revenues. The 63% growth in revenues, to $555.1 million from $341.1 million, reflected a 162% gain in incentive income, to $338.1 million from$129.0 million, and a 49% increase in investment income, to $34.6 million from $23.2 million.

Driven by $4.7 billion of distributions to investors in closed-end funds, incentive income arose from funds in distressed debt, real estate and control investing strategies, and included $272.5 million from OCM Opportunities Fund.

Adjusted net income increased to $632.7 million for the six months ended June 30, 2013 from $339.1 million for the six months ended June 30, 2012, on a 74% rise in total segment revenues, to $1.1 billion.

Distributable earnings grew to $313.2 million in the second quarter of 2013 from $176.4 million in the second quarter of 2012, on higher incentive income and investment income proceeds.  For the six-month period, distributable earnings rose to $608.2 million in 2013 from $313.7 million in 2012. The 2013 results represented record highs for any quarter or six-month period in the Company’s history.

The stock still trades at a very reasonable valuation with the stock at a current PE of 9.45 and a price to sales ratio of 0.65.

This Takeover Candidate Offers High Yield and High Growth

Investors looking for high yield and high growth stocks should consider NTELOS Holdings Corp (NTLS) as a possible portfolio addition.  For income, the stock boasts a healthy 8.95% dividend yield.   For growth, earnings per share are projected to grow 29%next year compared to the current year.  This is a combination that can create significant upside for the stock price.  In addition, there is considerable speculation that NTELOS may be acquired by a larger telecom provider.

First Call consensus has NTELOS earning $1.32 per share in 2014 which is an increase of 29% from its 2013 EPS.  The EPS growth will better support the current dividend payout ratio.  Investors can wait for a pullback to add new shares since NTLS shares are up 30% in the past three months due to talk of a takeover.

AT&T Inc.’s (T) deal to grab Leap Wireless for$1.2 billion in cash continues the U.S. wireless consolidation race and has Wall Street looking at other possible targets.  NTELOS is a name being mentioned as having attractive spectrum. The company is small, with just 451,000 total subscribers at the end of March and a market value of$360 million. By comparison, Verizon Wireless has more than 90 million contract customers.

Despite its size, NTELOS has connections to bigger players including a wholesale deal to provide Sprint (S) service in West Virginia and western Virginia.  It is also working with Dish Network Corp. (DISH) to co-develop a fixed-mobile broadband-service within its coverage territory.

Once completed, the service is expected to give NTELOS and Dish customers access to high-speed Internet, a service that is especially lacking in some of the rural areas NTELOS covers.  The agreement comes as Dish has been working to plug a significant hole in the services it provides, it can’t offer high-speed Internet competitive with cable providers.

NTELOS Holdings Corp., a leading regional provider of nationwide wireless voice and data communications and home to the “best value in wireless,” recently announced it will be added to the Russell Microcap® Index, effective at the close of the market on June 28, 2013.

NTELOS Holdings Corp., operating through its subsidiaries as “nTelos Wireless,” is headquartered in Waynesboro, VA, and provides high-speed, dependable nationwide voice and data coverage for approximately 451,000 retail subscribers based in Virginia, West Virginia and portions of Maryland, North Carolina, Pennsylvania, Ohio and Kentucky. The Company’s licensed territories have a total population of approximately 7.9 million residents, of which its wireless network covers approximately 6.0 million residents. The Company is also the exclusive wholesale provider of wireless digital PCS services to Sprint Nextel in the Company’s western Virginia and West Virginia service area for all Sprint CDMA wireless customers.

Here is a Nice Dividend Capture for July

For investors looking to book a solid dividend, Himax Technology (NASDAQ: HIMX) is the place to be in July.  Himax Technology has a current dividend yield of 4.78%.  On June 17, 2013 the board of directors approved a dividend of $0.25 per share.  The dividend is payable on July 31, 2013 to shareholders of record on July 19, 2013.

The stock has recently pulled back to $5.22 and presents a nice dividend capture strategy as HIMX pays an annual dividend.  Himax has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.  The stock has a 12-month price target of $8.40.  The stock is up 188% in the past year.

HIMX is growing solidly, and has shown this by beating Q1 earnings estimates, despite the fact that last quarter was the slow quarter for most Asian companies.  Himax also expanded its profit margin by 5%. This stock’s growth should only continue with the massive amount of news catalysts on the horizon.

Himax recently announced the closing of the previously announced underwritten offering by selling shareholder Innolux Corporation (“Innolux”) of 25,399,753 American Depositary Shares (“ADSs”), including 3,313,011 ADSs sold pursuant to the underwriters’ over-allotment option. The underwriters have exercised in full their over-allotment option to purchase the 3,313,011 ADSs. Immediately following the closing, Innolux has ceased to be the Company’s shareholder. The Company did not sell any ADSs in the offering and did not receive any proceeds from the offering. Innolux’s sale of the ADSs will not result in dilution of the Company’s outstanding shares.

Himax Technologies, Inc. (HIMX) is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Himax’s main products include display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and many other consumer electronics devices.  Additionally, Himax designs and provides controllers for touch sensor displays, LCOS micro-displays used in palm-size projectors and head-mounted displays, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions and silicon IPs. The Company also offers digital camera solutions, including CMOS image sensors and wafer level optics, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security and medical devices. Headquartered in Tainan, Taiwan, the Company has offices in Hsinchu and Taipei, Taiwan and in China, Korea, Japan and the US.

MRO – Look for a 49% Price Gain

David Kostin, Goldman Sachs’ chief U.S. equity strategist, provides us with a list of stocks with the most upside potential in his new Monthly Chartbook.   Kostin notes early May was solid for the S&P 500, but cited month-end drags in telecom services and utilities (-7 and -9 percent, respectively).  Nevertheless, he projects the S&P will end up 7.3% by year end, at 1750.

One stock on the Goldman list to watch is Marathon Oil (MRO).  The stock is up 39% in the past year but Goldman Sachs is projecting an increase of 49% in the stock.  In addition, Marathon offers a 1.96% dividend yield.

Production grew 8% (excluding Libya; 48 thousand barrels of oil equivalent per day; MBOE/d) in 2012, to 388 MBOE/d. MRO expects development at U.S. onshore plays to drive a 7%-10% production boost in 2013 (ex Libya and Alaska), to 405-425 MBOE/d, and a 5%-7% production CAGR (compound annual growth rate) through 2017. MRO believes these assets are 80% liquids. We expect a lower planned 2013 rig count, made possible by drilling efficiencies, to keep cost inflation down. Since the fourth quarter 2012, Eagle Ford and Bakken production are up 22% and 6%, respectively. MRO is ending shale activity in Poland on weak tests.

MRO spun off its downstream business to shareholders in a tax-free transaction in mid-2011. We had been looking for reduced refining contributions over the next five years and believe greater exposure to upstream projects in new international and U.S. onshore basins will drive upstream growth at lower operating costs. MRO’s streamlined asset base (75% oil, based on reserves) is one of the higher-content liquids portfolios among domestic E&P companies. Operations in Libya resumed in late 2011 and MRO is looking to ramp up production there. MRO lowered its onshore U.S. rigs to about 25 as of October 2012, versus 34 rigs earlier in 2012, in response to lower prices.

MRO’s growth assets are where it expects to make significant investment in order to realize oil and gas production and reserve increases. It is focused on U.S. growth by developing liquids-rich shale play positions, a strong position in the core of the Eagle Ford shale. In addition, growth assets include the development of Angola Block 31, discoveries in Iraqi Kurdistan, select Gulf of Mexico blocks and Canadian in-situ assets. Exploration is focused on Poland, Iraqi Kurdistan, Norway and the Gulf of Mexico. MRO had a goal of divesting between $1.5 billion and $3.0 billion of non-core assets between 2011 and 2013. For the two-year period ended December 31, 2012 , it had entered into agreements for approximately $1.3 billion in divestitures, of which $785 million were completed. The remaining $545 million in asset sales were completed by February 22, 2013

We see 2013 and 2014 EPS of $2.76 and $3.35, respectively, versus $2.45 (adjusted) in 2012.

Investors can find High Yield here

For investors looking for high yield without the risk of rising interest rates, AllianceBerstein Holdings (AB) is definitely worth a look.  The stock has a nice 6.62% dividend yield that has increased 64% in the past year.  AB has an equity summary score of 9.8 out of 10 for a Very Bullish rating.

First Call consensus has EPS increasing 23% in 2013 and 13% in 2014.  Analysts have a 12-month price target of $28.

AllianceBernstein’s  first-quarter profit rose 44% as demand from institutional investors helped the money manager book its second-straight quarter of inflows.

Assets under management stood at $443.2 billion at the end of the quarter, up from $430 billion at the end of 2012 and $419.1 billion a year earlier. Market gains added $10.6 billion while the firm also drew a net $2.6 billion in investor cash.

Institutional demand accounted for the bulk of the inflow, contributing a net $3.3 billion and helping to offset a modest outflow from the firm’s private- client business.

“Momentum continued to build in our institutions channel, where gross sales nearly doubled year-over-year,” Chief Executive Peter Kraus said.

AllianceBernstein reported a profit of $38.5 million, or 38 cents a unit, versus a year-earlier profit of $26.7 million, or 26 cents a unit.  Net revenue rose 4% to $709.1 million. Analysts expected earnings of 35 cents a unit on $684 million in revenue.

Total net revenues were up 4%, year to year, in the first quarter, driven by base investment management fees and easy comparisons.  We expect revenues to be up in the mid- to high single digits in 2013 and 2014 given easier comparisons and contraction of equity assets to the point where fixed income inflows are able to offset equity outflows.

The company has made progress in improving efficiency from cost-cutting efforts and has recently seen an encouraging turnaround in asset flows, but there is still work to do to improve equity fund performance.

This Monthly Dividend Stock May be Worth a Look

Fifth Street Finance Corp.(FSC) may be an ideal name for aggressive income investors. This is one of the top business development companies. The consensus price target is $11.50. Investors receive a 10.47% dividend with monthly distributions.  First Call consensus has a buy recommendation with a 2.5 rating.

Fifth Street reported net investment income of $0.27 (excluding gains on convert repurchase, diluted), in line with prior quarter and our estimate. This was a result of lower interest income earned on a larger average portfolio. Book value increased by $0.02 following a net $2.5 million unrealized appreciation on investments.

Liquidity: As of this week, FSC increased its available liquidity to $738 million following the post quarter end note issuance, capital raise, and credit facility expansion. FSC is well positioned for the acquisition of Healthcare Financial Group as management works toward its target leverage.

Valuation: Fifth Street is trading 12% premium, 1% above the peer group average, and yielding 10.47%, above the peer group average of 9.1%.

Estimates: Analyst lowered the 2013 estimate to $1.08 (from $1.10) to reflect a larger liquidity drag than previously expected. The 2014 and 2015 estimates remain unchanged at $1.15 and $1.20.

Maintain Buy: FSC is well positioned from a liquidity and capital standpoint to continue to take advantage of a strong pipeline of growth. The next step for the stock is to translate that into higher ROEs by achieving and maintaining higher levels of leverage.

In May, FSC announced that it has entered into an agreement to purchase a specialty lender, Healthcare Finance Group, that provides lending to healthcare companies. FSC will be investing $100 million, financed by cash and liquidity mentioned above.

OnMay 6, 2013, upon expiration of our existing stock repurchase program, the Board of Directors authorized a stock repurchase program to acquire up to$50 millionof outstanding common stock. Stock repurchases under this program would be made through the open market at times and in such amounts as management deems appropriate, provided they are below the most recently published net asset value per share.

Microsoft May be Worth a Look Here

Windows 8 has gotten bad reviews, its mobile push has stalled and it’s facing a murky market for corporate software.  But despite all those headaches, Microsoft Corp.(MSFT) has seen its stock rising.  The software giant’s shares have jumped 14% over the past three months.  The stock has a current dividend yield of 2.82% and is a regular 15% per year dividend increase stock.  The Company will unveil the new X-box next month.  The worst may be behind this software giant.

Microsoft reported Q3 results of $20.489 billion in revenue and EPS of $0.72, compared to consensus of $20.497 billion in revenue and EPS of $0.68.

Microsoft reported March quarter EPS and operating margin ahead of consensus expectations with increased expense controls, while revenue was essentially in line with consensus expectations—with Windows, Microsoft Business Division, and Server & Tools sales falling slightly below estimates and the Online Services and Entertainment & Devices divisions exceeding forecasts. Although the PC market continues to put pressure on Windows and Office revenue and server shipments have been slow, Microsoft effectively managed expenses during the quarter and reported improving growth in OSD and Windows Phone.

Going forward, although PC shipments are expected to remain weak in the June quarter, we expect the combination of more attractive price points, the ramp of new chipsets from Intel, and greater adoption by OEMs of touch screens for ultrabooks and laptops to drive greater adoption of Windows 8 devices in the second half of 2013 and into 2014 than the market appreciates (particularly in the business user segment with the eventual release of Surface Pro 2). Furthermore, we expect the end-of-life of Windows XP in April 2014 to drive growth in the professional PC segment.

Based on these dynamics, we believe that the rate of decline in PC shipments is bottoming, and with continued better-than-expected cost controls, improving OSD and Windows Phone revenue, a new Xbox cycle on the horizon, and solid long-term competitive positioning and near-term product launches in MBD and S&T, we expect Microsoft’s recent outperformance to continue.

Our fiscal 2013 estimates are adjusted to revenue of $78.812 billion and EPS of $2.68 from revenue of $81.514 billion and EPS of $2.78.

We maintain our Outperform rating and our target price of $38. At a 9.7x NTM P/E multiple, Microsoft trades at a 33.8% discount to the S&P 500.

Look to this Shipper for High Yield

Investors looking for a high yield stock may want to check out Ship Finance International Ltd (NYSE: SFL).  The stock boasts a 9.59% dividend yield with EPS projected to grow 16% in 2014.  With 2 analysts upgrading the stock, SFL looks like a potential high yield stock that can sustain its EPS and dividend.

On February 25, Ship Finance International Ltd.’s fourth-quarter earnings jumped 69% as the tanker company benefited from a cash sweep agreement and a one-time gain from a sale.  Ship Finance, which owns and charters out large vessels that transport crude oil, in recent years has been diversifying its assets to include areas such as dry bulk and container ships. Though Ship Finance had seen a soft tanker market, the company said that the crude oil tanker market remained relatively firm.

Ship Finance is actively reviewing investment opportunities across its main market segments, while also closely monitoring the performance of its chartering counterparties in light of the “prevailing soft spot-market in some of the shipping segments.”  Ship Finance reported a profit of $51.1 million, or 60 cents a share, versus $ 30.2 million, or 38 cents a share, a year earlier. The latest period included $ 12.1 million from a cash sweep agreement with Frontline Ltd. and a $21.5 million gain on the sale of vessels.

Total operating revenue rose 2.1% to $77.7 million.  Analysts polled by Thomson Reuters most recently forecast earnings of 33 cents on revenue of $89.9 million.

First Call consensus has Ship Finance earning $1.71 in FY 2014 which is 16% above 2013 EPS.  First Call has a buy rating on the stock with a 2.2 rating.  The stock trades at a PE of 7 and 1.4 times book value.  Ship Finance has a 12-month price target of $18.70.

On April 20, 2013 Columbine Capital Services, Inc. upgraded SHIP FINANCE INTERNATIONAL LTD from NEUTRAL to FAVORABLE.

On April 12, 2013 Ford Equity Research upgraded SHIP FINANCE INTERNATIONAL LTD from HOLD to BUY.

This Lodging Stock is a Stable Growth and Income Play

RLJ Lodging Trust (RLJ) is a self-advised, publicly traded real estate investment trust focused on acquiring premium-branded, focused-service and compact full-service hotels.  The Company’s portfolio consists of 145 hotels in 21 states and theDistrict of Columbia, with a total of more than 21,600 rooms.  RLJ is a great growth and income stock as it is projected to increase EPS by 19% in 2013 while paying a steady 3.6% dividend yield.

The Company recently announced that it acquired the historicHumble Oil Buildingcomplex in downtownHouston, for a purchase price of$79.5 million, or approximately$151,000per key based on a combined forward room count of 528 keys.

The Humble Oil Buildingis a three-tower complex that occupies an entire city block in downtownHouston. The complex consists of an 82-unit apartment tower that will be converted to a 166-room SpringHill Suites and two existing hotels, the existing 191-roomCourtyard Houston Downtown Convention Center(“the Courtyard”) and the 171-roomResidence Inn Houston Downtown Convention Center(“the Residence Inn”). The purchase price represents a forward capitalization rate of approximately 10.1% for the Courtyard and 9.5% for theResidence Innbased on each hotel’s projected 2013 net operating income and applicable purchase price allocation. The Company purchased this portfolio of assets with its revolving credit facility.

“Our ability to execute this off-market transaction required the expertise, experience, and relationships that are unique to RLJ,” commentedThomas J. Baltimore, Jr., President and Chief Executive Officer. “Acquiring theHumble Oil Buildingcomplex represents a value-add opportunity. Both existing hotels have notable upside potential and our extensive experience managing complex renovations will enable us to deliver another conversion property that will help drive economies of scale.”

Adjusted FFO for the three months ended December 31, 2012, increased $13.4 million to $50.7 million, representing a 35.9% increase over the comparable period in 2011. For the twelve months ended December 31, 2012, Adjusted FFO increased $43.5 million to $185.6 million, representing a 30.6% increase over the comparable period in 2011. Adjusted FFO per diluted share and unit for the three and twelve months ended December 31, 2012, was $0.48 and $1.74, respectively, based on the Company’s diluted weighted-average shares and units outstanding of 106.8 million and 106.6 million for each period, respectively.

Net income attributable to common shareholders for the three months ended December 31, 2012, was $13.7 million, compared to a loss of $1.3 million in the comparable period in 2011. For the twelve months ended December 31, 2012, net income attributable to common shareholders was$41.3 million, compared to$11.3 million for the comparable period in 2011.

First Call consensus has the company producing $2.08 in EPS in 2013 which is a 19% increase from the prior year.  EPS are projected to be $2.34 in 2014 which is a nice 12% increase from 2013.  First Call Analyst currently have a buy rating with a 2.0 rating.  RLJ has an equity summary score of 7.2 out of 10 for a Bullish outlook.  The stock is currently trading near $22.50, 10.8 times 2013 EPS and 9.6 times 2014 EPS.

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