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4 Companies with Bullish Outlooks Increasing Dividends

As we roll through earnings season, more companies are increasing their dividends.  For income investors, the stocks listed below are rated bullish or better by their equity summary score.  These stocks are worth a look as candidates for a dividend growth portfolio.

CBS (CBS) is boosting its quarterly dividend by 20%, to 12 cents a share. The additional quarterly payout of two cents will cost the company roughly $51.9 million more a year.  The dividend is payable on October 1, 2012 to shareholders of record on September 10, 2012.  CBS also boosted its share repurchase program by 57% to $4.7 billion and added to its quarterly dividend, as it seeks to increase shareholder returns.

Bottom line: CBS has a dividend yield of 1.43%.  CBS has an equity summary score of 9.7 out of 10 for a VERY Bullish outlook.

Calumet Specialty Products Partners, L.P. (CMLT) announced an increase in its quarterly cash distribution to $0.59 per unit ($2.36per unit on an annualized basis) for the quarter ended June 30, 2012 on all of its outstanding limited partner units. This distribution represents an increase of 5.4%.  The distribution will be paid on August 14, 2012 to holders of record of such units at the close of business on August 3, 2012.

Bottom line: CLMT has a dividend yield of 9.41% and has increased dividends for 8 straight quarters.  CLMT has an equity summary score of 9.0 out of 10 for a Bullish outlook.

Baxter International (BAX) raised its quarterly divided by 34% and approved a new share repurchase program of up to $2 billion of the company’s stock as the health-care company looks to boost shareholder value.  The medical-products company raised its quarterly divided to 45 cents a share from 33.5 cents, a move that will cost an added $253 million a year.  Last week, the company reported second-quarter earnings rose 7.5%, although it said currency impacts weighed on its revenue growth.

Bottom line: BAX has a dividend yield of 3.02% with a 5-year average dividend growth of 21.85%.  BAX has an equity summary score of 7.8 out of 10 for a Bullish outlook.

Holly Energy Partners, L.P. (HEP) has declared a cash distribution of $0.91 per unit for the second quarter of 2012. For the prior quarter, $0.895 was distributed to unitholders.  Holly Energy has increased its distribution to unitholders every quarter since becoming a public partnership in July 2004. This marks the thirty-first consecutive quarterly increase. The distribution will be paid August 14, 2012, to unitholders of record August 7, 2012.

Bottom line: HEP has a dividend yield of 5.71% with a 5-year average dividend growth of 5.69%.  HEP has an equity summary score of 7.1 out of 10 for a Bullish outlook.

High Yield Stocks with Growing Dividends that are Overpriced

My model for performing the intrinsic and future values are shown in the table below using three stocks that are trading at a premium or discount
to their fair value.  By using the average PE ratio and projected EPS growth, you can use the future time value formula to get an estimate of earnings X number of years into the future. Once you have the future projected earnings per share, just multiply by the PE ratio to get a future stock price. All of the projected growth rates are available on most websites providing detailed stock information. This is great information when looking at the future of a stock in comparative terms. Take this one step further, and you can determine the intrinsic value of a stock. Here, you are using the present time value formula based on your required rate of return. The end result is having a fair value estimate of the stock to compare to the stock’s current trading price. This comparison will determine if a stock is overvalued or trading at a discount.

We use the same concept to determine the future dividend payout and yield in future years.  For me, I prefer to project 10 years forward based on past compound annual growth rates [CAPG] of 10 years of data. The number of years can be adjusted for shorter time periods for stocks with less than 10 years of public data. What should your required rate of return be?  I am currently using a 10% return on invested capital.  Here is my assessment of three high yield
stocks.

Altria Group (MO) engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally.  Currently, MO is trading at a 17% premium to its fair value.  It has an EPS growth rate of 8%, with an average PE of 13.4. MO is projected to have a future dividend yield
of 5.5%, but its dividend yield on cost is projected to be 12% in 10 years.  This is an excellent investment to buy as a dividend grower especially on a pullback to its fair value of $25.

AT&T Inc., (T) provides telecommunication services to consumers, businesses, and other service providers worldwide.  Currently, T is trading at a 39% premium to its fair value.  It has an EPS growth rate of 3.7%, with an average PE of 14. T is projected to have a future dividend yield of 5.7%, but its dividend yield on cost is projected to be 8.9% in 10 years.  AT&T is overpriced for such a low growing stock but is a stable dividend payer.

Holly Energy Partners, L.P. (HEP) operates a system of petroleum product and crude oil pipelines, storage tanks, distribution terminals, and loading rack facilities.  HEP is trading at a 20% premium to its fair value.  It has an EPS growth rate of 6.7%, with an average PE of 21. HEP is projected to have a future dividend yield of 4.7%, but its dividend yield on cost is projected to be 9.7% in 10 years.  Investors should be cautious as HEP has a payout over 100% of EPS.

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