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Stocks Growing Dividends with High Equity Summary Scores

As the earnings season continues, many companies are increasing their dividends. While the dividend increase is positive for stocks, it doesn’t indicate that the stock outlook is bullish. For income investors seeking to implement new dividend positions, they should consider if the outlook for the stock is positive so they don’t fall into a bear trap. The equity summary score is a consensus ranking among all analyst ratings of the stock.  A bullish outlook from the equity summary score is 7.0 or better on a 10 point system. The following list provides stocks that have increased their dividends recently and have a bullish outlook etermined by their equity summary score.

Semiconductor-manufacturing giant Applied Materials (AMAT) processed a 13% jump in its quarterly payout, raising its dividend to 9 cents per share. The new dividend is payable June 14 to shareholders of record as of May 24. The new dividend yield, based on the closing price of $12.56, is 2.88%. AMAT has a payout ratio of 26%.  It has a five-year annual dividend increase of 12.5%. AMAT has an equity summary score of 9.9 out of 10 for a very bullish outlook.

Iconic American agricultural-equipment maker Deere & Co. (DE) plowed through its balance sheet and dug up a 12% dividend increase, to 46 cents per share. The new dividend is payable May 1 to shareholders of record as of March 30. The new dividend yield, based on the closing price of $81.46, is 2.25%. DE has a payout ratio of 23%. It has a five-year annual dividend increase of 15.9%. DE has an equity summary score of 9.7 out of 10 for a very bullish outlook.

Communication-equipment maker Harris Corp. (HRS) supplies tactical radios to the military. The company listened to its balance sheet and moved its quarterly payout up 18%, to 33 cents per share. The new dividend yield, based on the closing price of $43.71, is 3.01%. HRS has a payout ratio of 24%. It has a five-year annual dividend increase of 24.5%. HRS has an equity summary score of 9.6 out of 10 for a very bullish outlook.

Electrical-components maker Hubbell Incorporated (HUB-B) sparked an 8% increase in its quarterly payout, to 41 cents per share. The new dividend yield, based on the closing price of $78.50, is 2.07%. HUB-B has a payout ratio of 34%. It has a five-year annual dividend increase of 4.4%. HUB-B has an equity summary score of 9.3 out of 10 for a very bullish outlook.

Chipmaker Cypress Semiconductor (CY) processed a 22% jump in its quarterly payout, to 11 cents per share. The new dividend is payable April 19 to
shareholders at the close of business on March 29. The new dividend yield, based on the closing price of $15.84, is 2.76%. CY has a payout ratio of 18%. CY has
an equity summary score of 8.9 out of 10 for a bullish outlook.

Medical-devices maker St. Jude Medical (STJ) put in a stent to boost the flow of its dividend, raising its payout 10%, to 23 cents per share. The new dividend is payable April 30 to shareholders of record as of March 30. The new dividend yield, based on the closing price of $42.09, is 2.15%. STJ has a payout
ratio of 33%. It has a five-year annual dividend increase of 83.3%. STJ has an equity summary score of 8.9 out of 10 for a bullish outlook.

Athletic footwear retailer Foot Locker (FL) gave shareholders a March Madness win in the form of a 9% jump in its quarterly payout. The new dividend is payable on Apr. 27 to shareholders of record as of Apr. 13. The new dividend yield, based on the closing price of $30.18, is 2.38%. FL has a payout ratio of 37%. It has a five-year annual dividend increase of 7.6%. FL has an equity summary score of 8.6 out of 10 for a bullish outlook.

Energy and utility holding company PPL Corporation (PPL) sent a new dividend to shareholders that is approximately 2.86% higher. The new dividend yield, based on the closing price of $28.05, is 5.07%. PPL has a payout ratio of 52%. It has a five-year annual dividend increase of 3.4%. PPL has an equity summary score of 8.4 out of 10 for a bullish outlook.

 

Covered Call Trade on Deere and Company (DE)

This is a covered write on Deere and Company (DE) for the December 2012 expiration.  Deere & Company provides products and services primarily for agriculture and forestry worldwide. The company operates in three segments: Agriculture and Turf, Construction and Forestry, and Credit.

OPTION STRATEGY:

Look at the December 72.5 covered call. For each 100 shares of Deere and Co (DE) stock you buy, sell one December 72.5 covered call option for a 70.14 (73.64 – 3.50) debit or better. That’s potentially a 3.36% assigned return in 19 days.   That is a 63.66% anualized gain (comparable purposes only) on this short trade.

TRADE TECHICALS:

The technicals for DE are bullish with a weak upward trend.  The stock is under accumulation with support at 74.06. S&P rates this stock 4 STARS (out of five) – buy.

RESEARCH NOTES:

S&P maintains buy opinion on shares of Deere (DE) .  Oct-Q EPS of$1.62, vs. $1.07, beats our est. by $0.23.  Revenue gain of 20% was in line with our est., on strong equipment demand, but costs were controlled better than we expected.  Most encouraging, in our view, is DE’s equipment outlook, with its guidance of 15% growth in FY 12 (Oct.) equipment sales, well in excess of our prior 10% est.  Our long-term view also stays positive, on growing needs for food and infrastructure.  We raise our FY 12 EPS estimate by$1.00 to $8.60, and initiate FY 13’s at $9.60.  We keep our target price at $99, in line with historical relative metrics.

Monthly Income Investment Using Covered Call Trade on Deere and Company (DE)

Deere is currently trading at $73.83 and is rated a buy with 4 stars by S&P.  This is setting up nicely for a monthly income investment with a deep-in-the-money covered call.

Strategy:  Look at the September 70 covered call. For each 100 shares of Deere (DE) stock you buy, sell one September 70 covered call option for a 68.13 (73.83 – 5.70) debit or better. That’s potentially a 2.75% assigned return on investment. This gives you almost 8% downside protection for the next option month.   The technicals for DE are bearish with a weak downward trend.  The stock is under accumulation with support at 66.06.
The long-term investor can look at the December 70 call trading at $8.30 at this time.  This adds $2.60 more in premium compared to the September 70 call ($5.70).  The December trade will net a 6% return on investment if assigned.
Research Notes: S&P maintains buy opinion on shares of Deere (DE).   Jul-Q EPS of$1.69, vs. $1.44, is $0.09 below forecast, as 24% rise in equipment sales was partly offset by higher materials costs. Despite greater economic uncertainty, we see ongoing gains in demand for DE’s equipment. We also think its long-term trends are favorable, on growing needs for food, shelter and infrastructure. We keep our FY 11 (Oct.) EPS estimate at $6.40 and FY 12’s at $7.60. However, on reduced economic visibility, we cut our target price by $16 to $99.
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