Dividend Challengers are stocks that have raised distributions to shareholders over a period of more than five consecutive years but less than 10 years. These stocks will continue to grow their dividend for years to come. These results in a higher yield to cost in the coming years as the dividend increases while the initial investment costs stay the same. This is how investors can create a stock with a dividend yield in double-digits in 10 to 20 years. The stocks identified in this analysis possess 5-year dividend growth rates greater than 20%. In addition, these stocks all have an equity summary score indicating a bullish outlook from analysts. Here are five Dividend Challengers with a bullish outlook.
Accenture (ACN), formerly Andersen Consulting, is a leading global management consulting, technology services and outsourcing enterprise, with operations in 48 countries, serving 17 industries. The company seeks to use its extensive knowledge of industries and business processes to help clients identify new business and technology trends, and to formulate and implement solutions to boost revenue, enter new markets, and deliver products and services more efficiently. ACN is trading at $64.50 with a dividend yield of 2.09%. In the past year, ACN increased its dividend by 63%. ACN has a 5-year dividend growth
rate of 30%. It has an equity summary score of 8.7 out of 10 for a BULLISH outlook. The 12-month target price of $71 is based on a peer-premium P/E of 17.9X our calendar 2012 EPS estimate of $3.96. We think a premium P/E is warranted given what we see as ACN’s healthy new bookings and a solid balance sheet that has nearly $5.6 billion in cash and cash equivalents and little debt.
From the first coffee and donut shop opened by Canadian hockey star Tim Horton in 1964, Tim Hortons (THI) has grown into Canada’s largest quick service restaurant chain, specializing in coffee, baked goods and home style lunches. In 2006, the company went public after Wendy’s International, Inc. (WEN), which had bought the company in 1995, completed an initial public offering of a minority stake and subsequently distributed the remaining shares to WEN shareholders on September 26, 2006. THI is trading at $53.54 with a dividend yield of 1.57%. In the past year, THI increased its dividend by 23.5%. THI has a 5-year dividend growth rate of 24.5%. It has an equity summary score of 8.7 out of 10 for a BULLISH outlook. The 12-month target price of $58 is based on our relative analysis. We apply a 21X P/E multiple to our 2012 EPS estimate, which is slightly above its peer average of about 19X.
Cummings (CMI) is a global equipment company makes and services diesel and natural gas engines, electric power generation systems and engine-related component products. CMI has over 600 company-owned and independent distributor locations and about 6,500 dealer locations in over 190 countries and territories. CMI’s key markets are the on-highway, construction, and general industrial markets. CMI is trading at $120.04 with a dividend yield of 1.34%. In the past year, CMI increased its dividend by 52%. CMI has a 5-year dividend growth rate of 34.7%. It has an equity summary score of 9.6 out of 10 for a VERY BULLISH outlook. The 12-month target price of $152 values the shares at 15X our 2012 EPS estimate of $10.13, in the middle of CMI’s five-year historical P/E range of 4.3X-23.9X. We think we are still in the early stages of a new earnings up cycle that we expect to last for several years.
The Williams Companies (WMB) primarily gathers, processes and transports natural gas. Operations are concentrated in the Rocky Mountains, the Gulf Coast, and on the Eastern Seaboard. On January 3, 2012, WMB completed the separation of its midstream and exploration businesses into two publicly traded companies via a tax-free spin-off to Williams’ shareholders. WMB is now an energy infrastructure company focused on North America. WMB is trading
at $30.81 with a dividend yield of 3.38%. In the past year, WMB increased its dividend by 107%. WMB has a 5-year dividend growth rate of 23.5%. It has an equity summary score of 7.7 out of 10 for a BULLISH outlook. The 12-month target price of $33 is based on 22X our 2012 EPS estimate, in line with its six
year historical multiple average.
Coco-Cola Femsa (KOF) ADT is a Mexican bottler that produces, distributes and markets Coca-Cola, Fanta and other Coca-Cola trademark beverages in Mexico, Central America, Colombia, Venezuela, Argentina & Brazil. Over the past year the stock has pleased investors by producing strong relative performance. Its 28% advance led 94% of stocks in the TWI Intl Index (similar to the S&P ADR Index) and 87% of the Latin American stocks in that index.
KOF is trading at $105.91 with a dividend yield of 1.96%. In the past year, KOF increased its dividend by 80%. KOF has a 5-year dividend growth rate of 44%. It has an equity summary score of 7.3 out of 10 for a BULLISH outlook.