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New Dividend Stocks to Watch

Dividend stocks are still in vogue as income investors seek rates in the paltry low interest rate environment.  This has placed a premium on many blue-chip stocks with stable dividends.  The other impact is the number of companies that have initiated a new dividend in the past year.  These companies are starting with lower yields but their payouts indicate they will be raising their dividends in the future.  Here are 3 new dividend payers to add to your watch list for the coming months.

Oiltanking Partners (OILT) is a master limited partnership engaged in independent storage and transportation of crude oil, refined petroleum products and liquefied petroleum gas.  OILT reported first quarter 2012 net income of $15.9 million, or $0.40 per unit on a basic and diluted basis, compared to first quarter 2011 net income of $7.6 million. Adjusted EBITDA increased 21% to $20.2 million for the first quarter of 2012, compared to $16.7 million for the first quarter of 2011.  Revenues increased approximately $4.3 million, or 14.5%, to $34.3 million during the 2012 quarter, mainly attributable to additional revenues from the new storage capacity placed into service in December 2011 and an escalation in storage fees.  Since the completion of the initial public offering in July of 2011, OILT has announced over $200 million of organic growth projects to significantly expand their pipeline connectivity, flexibility and capacity, and acquire nearby land to support our announced expansions.

OILT trades at $32.59 with a market cap of $1.27 billion.  OILT declared a cash distribution for the first quarter of 2012 of $0.35 per unit, or $1.40 per unit on an annualized basis, for an annualized dividend yield of 4.29%.  The increased distribution represents a 2.9% increase over the prior quarter distribution of $0.34 per limited partnership unit.   OILT has a 33% dividend payout ratio so dividends will continue to be increased for this MLP.

Core-Mark (CORE) is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. Core offers a full range of products, marketing programs and technology solutions to approximately 29,000 customer locations in the U.S. and Canada. The company reported March 31 interim earnings of $0.31 versus $0.04 the previous year. The company’s latest interim earnings were above analysts’ expectations. Core-Mark’s earnings for the year 2012 are projected to advance roughly 59%.  We project it will grow with average persistence and at a long term rate of 14%. Its overall financial quality is high versus other firms.

CORE is trading at $49.26 with a market cap of $560 million.  CORE initiated dividend payments on October 2011 with a current dividend yield of 1.39%.  CORE has a dividend payout ratio of 13%. CORE has been upgraded by 5 brokerages in the past month.

Xyratex Ltd (XRTX) provides modular solutions for the enterprise data storage industry and hard disk drive (HDD) capital equipment for the HDD industry.  XRTX has sold off in the previous quarter making it a potential rebound stock.  For the second quarter, GAAP net income was $7.0 million, or $0.24 per diluted share, compared to GAAP net loss of $4.6 million, or $0.15 per share, in the same period last year.  Non-GAAP net income was $9.3 million, or $0.32 per diluted share, compared to non-GAAP net loss of $1.9 million, or $0.06 per share, in the same quarter a year ago.  Gross profit margin in the second quarter was 16.5%, compared to 12.9% in the same period last year.  During the quarter the Company recommenced repurchases of shares under the previously announced share repurchase plan. The Company repurchased 306,353 of its common shares during the quarter at a total cost of $3.6 million.

The board of directors at Xyratex approved a dividend of 0.075 per share. The dividend is payable on August 1, 2012 to shareholders of record on July 19, 2012.  XRTX has increased its dividend 50% since starting payments on August 2011.  XRTX has a dividend yield of 2.77% with a 15% payout.  XRTX has an equity summary score of 9.0 out of 10 for a Bullish Outlook.

The Best MLPs to Own Now

Many of the blue-chip dividend payers are hitting new 52-week price highs.  This is concerning as when price increases, yields will fall.  Because of the soaring popularity of blue-chip dividend payers, more investors are turning to master limited partnerships (MLP).  These are pass-through entities that must pay at least 90% of their taxable income to investors. Many of these issues provide yields double those of blue-chip dividend stocks, and three to four times that of the 10-year Treasury note.

With that in mind, here is a list of MLPs that distribute high dividend yields.  Each company boasts a healthy bottom line already, and should continue to generate income as oil prices rise. As they generate income, so too will their shareholders.

Linn Energy, LLC (LINE), an independent oil and natural gas company, engages in the acquisition and development of oil and gas properties.  The master-limited partnership offers a generous 7.4% yield, with a quarterly distribution of $0.725 per share.  The dividend has increased 9.75% in the past year.  LINE is a best in class upstream MLP.  Distribution growth to accelerate as it integrates acquisitions & develops high-return Granite Wash program.  LINE is positioned to capitalize on acquisition opportunities owing to low commodity price environment.  Accretion from these, which LINE “locks-in” upfront via hedging, should drive LT growth.  LINE is projected to increase EPS by 30% next year.

DCP Midstream Partners, LP (DPM) engages in gathering, compressing, treating, processing, transporting, storing, and selling natural gas in the United States.  The master-limited partnership offers a 6.31% yield, with a quarterly distribution of $0.66 per share.  The dividend has increased 5.6% in the past year.  DPM is a high growth NGL dropdown play.  Entering transformative period, as it will acquire $3b of assets from sponsor.  Dropdowns along with additional organic growth will create integrated NGL midstream platform & drive distribution growth to high-single digits.

NuStar Energy L.P. (NU) engages in the terminalling, storage, and transportation of petroleum products primarily in the United States, Canada, Mexico, the Netherlands, St. Eustatius in the Caribbean, the United Kingdom, and Turkey.  The master-limited partnership offers a generous 8.45% yield, with a quarterly distribution of $1.095 per share.  This is a deep value, turnaround story for this crude oil storage & transport MLP.  NU is sowing the seeds for a recovery in distribution growth to the low-single digits.  We believe the recent increase in organic growth capex is sustainable given the number of low cost, high return project opportunities around its assets.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States, Canada, and Gulf of Mexico.  The master-limited partnership offers a 4.87% yield, with a quarterly distribution of $0.635 per share.  The dividend has increased 6.28% in the past year.  EPD is the largest energy MLP with access to most prolific natural gas, NGL & crude oil plays in US.  Despite its large size, $7.6B of cap ex projects support 5-6% distribution growth per year for next several years with 80% revenues expected to be fee-based by 2013.

Plains All American Pipeline, L.P. (PAA) engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquid petroleum gas (LPG) products in the United States and Canada.  The master-limited partnership offers a 5.09% yield, with a quarterly distribution of $1.065 per share.  The dividend has increased 9.8% in the past year.  PAA is the largest oil transport and storage MLP with a presence in most leading oil shale plays and major storage positions at strategic oil pipeline intersections.  Approximately $5B of organic capex thru 2015 to serve expected increase in US crude production.  Its distributions should grow high single digits the next few years.

The New Dividend Growth Superstar Series

It is easy to just run a stock screen looking for good dividend stocks and find a few worth evaluating for addition to your portfolio.  Many investors have had success by buying dividend stocks and compounding their returns over time.  This will generally bring you back to the classic blue chip stocks.  These stocks are consistent and steady performers.  However, did you ever wonder what these stocks produced when they were younger such as 25 years ago?  Yeah, these types of stocks made many millionaires.

So if you want to follow a similar path, where would you start today?  I have an idea to identify stocks that have performed well in the past 5 years.  I am looking at 5-year growth rates in revenue, EPS, cash flow and book value.  The real superstar stocks will dominate these metrics and have cash to share with owners.  To make my list, each stock must have at least a 10% 5-year growth rate in each metric and payout a rising dividend during this period.  It is these stocks that I call “The New Dividend Superstars.”  These are stocks that you may not think of as dividend stocks. But in a few years your yield on cost will be much higher than you realize.  Lastly, you will avoid the dividend bubble in current high yield stocks.  It will take several posts to discuss stocks on this list.  So let’s get started.

CF Industries Holdings, Inc. (CF) through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide.  CF has been on a ride with a 31% price increase year to date.  CF has a very low yield of 0.84% but it has a 5-year dividend growth rate of 83%.  As for the metrics, CF has a 5-year EPS growth rate of 105% with a 5-year cash flow growth of 72%.  Revenue growth over 5 years was 25% and book value 37%.  Fertilizer stocks are moving higher after the government reported greater than expected damage to corn crops.  This should help to sustain the growth of CF in the coming quarters.

AZZ Incorporated (AZZ) is a manufacturer of electrical products and a provider of galvanizing services.  AZZ is up 43% year to date following great Q1 earnings.  The company posted Q1 earnings of $1.26 per share, compared with the prior year period’s $0.75. Excluding non operational income and expense items, earnings per share was $1.02. The Capital IQ consensus estimate was $0.81 EPS.  Revenues were $127.1 million, compared with $114.33 in the same quarter last year. Analysts were looking for $122.82 million in revenues.  AZZ declared a 2 for 1 stock split of the Company’s Common Stock in the form of a 100% stock dividend, payable on July 30, 2012 to shareholders of record as of July 16, 2012.

AZZ is a small stock with a market cap of only $821 million.  AZZ has a 5-year EPS growth rate of 12% with a 5-year cash flow growth of 18%.  Revenue growth over 5 years was 12.5% and book value 19%.  AZZ has a dividend yield of 1.57% that has a 5-year dividend growth rate of 67%.  AZZ has a payout ratio of 26%.

Herbalife (HLF) is a global nutrition company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle.  HLF got hammered in May on speculation that David Einhorn of Greenlight Capital would short the stock.  This never happened when Greenlight released their new positions.  This creates a great opportunity to buy this growth stock $20 cheaper with a higher dividend yield.  HLF reported first quarter net sales of $964.2 million, a 21 percent increase driven by a 24 percent increase in volume points compared to the prior year period. For the same period, the company reported net income of $108.2 million, or $0.88 per diluted share, reflecting an increase of 22 percent and 24 percent respectively compared to the adjusted first quarter 2011 net income of $88.7 million and $0.71 per diluted share.

HLF recently received seven new retail licenses to expand sales in China.  HLF plans to buy back nearly $428 million of its own shares after seeing its stock drop to complete a $1 million buyback plan.  HLF is a mid cap stock with a market cap of $5.58 billion.  HLF has a 5-year EPS growth rate of 28% with a 5-year cash flow growth of 22.8%.  Revenue growth over 5 years was 13% and book value 14%.  HLF has a dividend yield of 2.43% that has a 5-year dividend growth rate of 64%.  HLF has a payout ratio of 25%.

Building a High Dividend Yield, Low Beta Income Portfolio (Part 3)

For income investors wanting to go it alone, they should consider creating a portfolio of high dividend stocks with low beta.  This type of portfolio will provide a risk to reward profile during times of uncertainty in the markets.  By adding the component of a bullish outlook to the low beta stocks indicates these stocks can be held in a long-term portfolio.  The high dividend yield can be compounded over time and will increase as these stocks raise their dividends each year.  This portfolio will be built in a series of articles.  You can read Part 1 here and Part 2 here.  Below is Part 3 with more stocks to look at for adding your portfolio.

Philip Morris International Inc. (PM) manufactures and sells cigarettes and other tobacco products.  Separated from operations in the U.S. and the
regulatory and litigation risk of that market, PM will, in our view, be better positioned to innovate, tailor offerings to higher-growth emerging markets,
achieve cost savings, and incentivize managers.  We think PM’s low penetration of markets with potentially high cigarette consumption, such as China, India and Vietnam, also provides attractive opportunities.  Also, the spinoff provided PM with currency for acquisitions.  We believe its high cash flow generation is
supportive of regular stock repurchases and its dividend, which recently yielded 3.5%.  PM increased its dividend 20% in the last year.  PM has a 3-year beta
of 0.61.  PM has an equity summary score of 9.7 out of 10 for a VERY Bullish outlook.

Pfizer Inc. (PFE), a biopharmaceutical company, engages in the discovery, development, manufacture, and sale of medicines for people and animals worldwide.  The world’s largest pharmaceutical company, Pfizer produces a wide range of drugs across a broad therapeutic spectrum.  In October 2009, PFE acquired rival drugmaker Wyeth for some $68 billion in cash and stock.  Although we expect the loss of U.S. patent protection on Lipitor and negative foreign
exchange to result in lower earnings this year, we think the decline should be cushioned by strength in several key pharmaceutical lines, growth in emerging
markets, cost restructurings and common share buybacks.  The company recently announced a $10 billion buyback, of which $5 billion is expected to be purchased in 2012.  We are also encouraged by PFE’s pipeline, which comprises potential breakthough treatments for arthritis, heart disease and other conditions, as well as by the planned spinoff to shareholders of non-core businesses.  PFE has a dividend yield of 4.03% and a 3-year beta of 0.75.  PFE increased its dividend 10% in Q1 2012.  PFE has an equity summary score of 7.4 out of 10 for a Bullish outlook.

Johnson & Johnson (JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide.  We believe
JNJ’s diversified sales base across drugs, medical devices and consumer products, along with its decentralized business model, has served it well in the past and should continue to do so in the years ahead.  In our view, JNJ’s pharma segment should benefit from a number of key new products, including Xarelto blood thinner, Incivek treatment for hepatitis C, Zytiga for prostate cancer, and Edurant for HIV.  In late April 2011, JNJ agreed to acquire Synthes for $21.3 billion in cash and stock.  We see significant operating synergies accruing from the proposed Synthes combination, which is expected to be completed in the
first half of 2012. JNJ has a dividend yield of 3.59% and a 3-year beta of 0.49.  JNJ has a 5-year average dividend growth rate of 8.23%.  JNJ has an equity summary score of 8.2 out of 10 for a Bullish outlook.

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