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Best Dividend Stocks in the Consumer Discretionary Sector

S&P recommends overweighting the S&P 500 Consumer Discretionary sector. Year to date through May 25, the sector index, which represented 11.2% of the S&P 500 Index, was up 10.62%, compared with a 4.5% rise for the S&P 500.  There are 32 sub-industry indices in this sector, with Restaurants being the largest at 13.8% of the sector’s market value.  Foreign exposure should continue to weigh on the group until Europe emerges from recession.  We have noted that domestic companies have outperformed multinational companies since mid-August 2011 and we prefer companies with most of their sales in the US.

We have screened across the sector to identify the companies with the best total returns in the past year.  These stocks have a dividend yield greater than 3% and increased their dividend in the past year.

Amusement and water park operator Cedar Fair (FUN) has a 1-year total return of 66%.  FUN has rebounded from being down in the recession as more people are visiting the parks today.  While this is a significant price run up, FUN trades at 11 times next year’s earnings.  FUN has a dividend yield of 5.59% which was increased 300% in the past year.

Flexsteel Industries (FLXS) is a designer, manufacturer, importer and marketer of quality upholstered and wood furniture for residential, recreational vehicle, office, hospitality and healthcare markets.  All products are distributed nationally.  FLXS reported record third quarter net income of $3.3 million or $0.48 per share compared to net income of $2.5 million or $0.35 per share in the prior year quarter, an increase of 36.2%.  FLXS has a 1-year total return of 44% but only trades at 10 times next year’s earnings.  FLXS just announced that its board approved a 50% increase in the company’s quarterly dividend by declaring a $0.15 per share dividend payable July 2, 2012 to shareholders of record as of June 15, 2012.  This is the third increase since March 2009 when the dividend was $0.05 per share.  Flexsteel has paid cash dividends on its common stock each year since 1938.

This may be the best time to buy toy maker Mattel (MAT) since its highest earnings are in the second half of the year.  MAT dropped a couple dollars following first quarter earnings that were affected by it acquisition costs of buying HIT Entertainment.  However, MAT has a 1-year total return of 23%.  IT pays a dividend yield of 3.92% and increased its dividend 35% in the past year.  Mattel has a track record of outperforming the Standard & Poor’s 500 stock index during times in which credit markets were stressed in Europe’s so-called peripheral countries of Portugal, Spain, Italy and Ireland.

Fast food giant McDonald’s Corp (MCD) has a 1-year total price return of 11.5%.  It would be higher but MCD is down 10% in 2012 year to date.  MCD was too pricey at $100 per share so the pullback gives investors a better entry place.  MCD has been affected by uncertainty in the economy and European sales.  However, MCD has been performing well with its addition to healthy choices and it addition of coffee and smoothie drinks.  Anytime you get MCD on a pullback, it will be worth the price.  MCD has a dividend yield of 3.18% and a 5-year average dividend growth rate of 22%.

Leading media and marketing company Meridith Corporation (MCP) has a 1-year total return of 10%.  It’s sales and earnings have been in line with analyst estimates over the last few quarters.  Meredith features multiple well-known national brands – including Better Homes and Gardens, Parents, Family Circle, Allrecipes.com, Ladies’ Home Journal, Fitness, More, American Baby, EveryDay with Rachael Ray and FamilyFun – along with local television brands in fast-growing markets.  MCP should be purchased for its dividend yield of 4.84% and its 5-year average dividend growth rate of 15%.  The dividend is 50 percent higher than a year ago, reflecting a substantial increase on October 25, 2011, that – in conjunction with a new authorization to repurchase $100 million of Meredith stock – builds on Meredith’s commitment to returning cash to shareholders.   Meredith has a strong history of paying dividends – 65 consecutive years – and increasing them over time – 19 years straight.

Best Dividend Stocks for Consumer Discretionary Spending

S&P recommends overweighting the S&P 500 Consumer Discretionary sector. Year to date through February 17, the sector index, which represented 10.9% of the S&P 500 Index, was up 10.1%, compared with an 8.2% rise for the S&P 500. In 2011, this sector index rose 4.4%, versus a flat performance for the 500. There are 32 sub-industry indices in this sector, with Restaurants being the largest at 14.0% of the sector’s market value.

S&P equity analysts’ fundamental outlook on the Consumer Discretionary sector is positive. S&P Economics forecasts U.S. real GDP growth of 2.1% in
2012, and sees consumer spending increasing 2.0%. We anticipate that thematic drivers in 2012 will include technology advances, continued international
expansion, continued market segmentation of the targeted consumer base (demographic considerations, etc.), secular changes in consumer behavior
(online vs. traditional), advances in digital media technology, and further shifts to ROI-driven audience aggregation. According to Capital IQ, the sector
trades at a P/E of 15.3X consensus estimated 2012 EPS, which is greater than the S&P 500’s projected P/E of 13.0X. Its P/E-to-projected-five-year EPS
growth rate (PEG) ratio of 1.0X is below the broader market’s 1.2X. The sector’s marketweighted STARS average of 3.7 (out of 5.0) is slightly below the
average of 3.8 for the S&P 500.

The S&P GICS Consumer Discretionary Index completed a bullish base-on-base pattern early in January and has broken out to all-time highs after taking out 2011’s price highs. However, we view the sector as very overbought, so we see a minor pullback in the near term. Prices have widened the gap between the 17-week and 43-week exponential averages, a bullish sign, in our view. The shorter average remains above the longer average, also a positive sign for the intermediate term, in our opinion. Relative strength versus the S&P 500 remains in a long-term uptrend and the RS line is not far from a new bull market high. Our technical opinion on the Consumer Discretionary sector remains bullish.

In summary, S&P recommends overweighting the S&P Consumer Discretionary sector as strong emerging market revenue growth and a gradually
expanding U.S. economy likely fuel above-average EPS growth, in our view, enabling market outperformance.

FOCUS DIVIDEND STOCKS

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, Canada, and Mexico.  GPC is trading at $63.58 with a PE of 17.8.  It has an equity summary score of 9.4 out of 10 indicating a VERY BULLISH outlook.  GPC has a dividend yield of 3.15%.  We forecast sales will increase 6.8% in 2012, as we think all GPC’s segments will continue to enjoy growth as the U.S. economy strengthens.  Margins should benefit from higher volume and cost-cutting efforts, despite price pressures.  We see EPS of $3.92 in 2012.  Results in 2012 should benefit from GDP growth, which S&P forecasts at 2.1%. Based on our 2012 EPS estimate, the stock’s recent P/E of 16X is above the average for peers. We think a premium multiple for GPC is warranted by the company’s greater earnings stability. We view GPC as financially strong, earnings quality appears high to us, and an above-average dividend yield adds to total return potential.

Gannett Co., Inc. (GCI) operates as a media and marketing solutions company in the United States and internationally. Its Publishing segment publishes 82 U.S.  GCI is trading at $14.93 with a PE of 7.9.  It has an equity summary score of 9.2 out of 10 indicating a VERY BULLISH outlook.  GCI has a dividend yield of 5.58%.  We look for a contraction in print publishing revenues in 2012, although at a slightly slowing rate given a recovering economy in the U.S.  We project broadcast revenue growth to accelerate significantly in 2012 due to the U.S. presidential election and 2012 Summer Olympics.  Overall, we forecast
revenues to rise 1.1% in 2012, following contraction of 4.1% in 2011. GCI continues to take preemptive action to deal with weakening demand, including testing paid subscription models and multi-platform subscription packages.  We believe GCI’s valuation will benefit over the next 12 months from more stable advertising industry trends and benefits we see from potentially strong political and Olympic advertising demand in 2012.  Following five years of debt reduction efforts and with strong free cash flow generating capabilities, we look for more aggressive share repurchasing activity and potential dividend hikes.  However, our optimism is constrained by what we view as a secular decline in newspaper advertising, especially as only about 21% of the company’s revenues are currently generated by digital operations.

Mattel, Inc. (MAT) designs, manufactures, and markets various toy products. Its products comprise fashion dolls and accessories, vehicles and play sets, and games and puzzles.  MAT is trading at $33.53 with a PE of 15.4.  It has an equity summary score of 8.3 out of 10 indicating a BULLISH outlook.  MAT has
a dividend yield of 3.71%.  Although we believe U.S. consumer spending will remain skittish due to high unemployment and economic uncertainty, we see global growth opportunities for MAT’s portfolio of leading toy brands. We look for net sales to rise 3.9% to $6.51 billion in 2012, with growth driven by momentum we see in core brands including Barbie, Fisher-Price, Hot Wheels and American Girl. We also expect top-line benefits from an improving price-value offering in Fisher-Price toys, growing popularity of Monster High, Thomas and Friends, Sing-a-ma-jigs!, and WWE Wrestling.  In a still challenging selling environment, we see the company working to gain incremental market share through targeted investments in new products and marketing support. We also believe MAT is doing a good job of closely managing its cost structure. We note that recent cost-cutting efforts have been fruitful, and that additional cost synergies are likely from MAT’s recent acquisition of HIT Entertainment. In addition, MAT has also been able to achieve gross margins of 50% or more in each of the past three years.  While our outlook for MAT is positive, we view the shares as appropriately valued at recent levels.

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Best Performing High Yield Dividend Stocks in January 2012

The table below shows the best performing high yield dividend stocks for January 2012.  These are stocks with a dividend yield of 3% or higher and a summary equity score of very bullish (9.1 or greater on a 10 point scale).  These stocks are ranked by their price performance in the last 4 weeks, January 2012.   Here are some highlight notes from stocks making the top of the list.

Tessco Technologies (TESS) is highest with a dividend yield of 3.37% in the Electronic Equipment & Instruments industry .  TESS provides products and value-added services in the wireless communications industry.  The Company serves customers in the cellular telephone, personal communication system, paging, and mobile radio- dispatch markets.  TESSCO offers manufacturer brand name products, as well as its own products which are sold under the Wireless Solutions name.  In the past 52 weeks, shares of Tessco Technologies have traded between a low of $10.31 and a high of $17.25 and are now at $17.07, which is 66% above that low price.  Over the last five market days, the 200-day moving average (MA) has gone up 0.6% while the 50-day MA has advanced 1.2%.

Seagate Technology (STX) posted Dec-Q EPS of $1.28, vs. $0.31, beating our $1.02 estimate.  Sales rose 18% to $3.2B on a 24% increase in the average selling price  of hard disk drives due to the industry’s supply/demand imbalance. STX  signed long-term agreements with its major customers. As a result, we  believe hard disk prices will be more stable, but will remain at  slightly higher levels. We also project more cost synergy from the  acquisition of Samsung’s disk drive business. We raise our FY 12 (Jun.)  EPS estimate by $1.04 to $5.34, FY 13’s by $1.76 to $5.83, and our  target price by $8 to $32.

Shares of Cedar Fair (FUN) traded at a new 52-week high $26.31 on February 1 2012.  This new high was reached on approximately average trading volume as 214,000  shares traded hands, while the average 30-day volume is approximately 277,000  shares.  FUN has potential upside of 12.7% based on a current price of $26.18 and analysts’ consensus price target of $29.50.  Cedar Fair shares have support at the 50-day moving average (MA) of $22.82 and additional support at the 200-day MA of $20.44.  Cedar Fair, L.P. owns and operates amusement parks.  The Company’s parks operate under the Cedar Point, Knott’s Berry Farm, Dorney Park & Wildwater Kingdom, Valleyfair, and Worlds of Fun and Oceans of Fun names.  Cedar Fair’s parks are family-oriented theme parks that are located in various areas of the United States.

High yielding Real Estate Investment Trusts (REITs) such as Chimeria Investments (CIM) have performed well in the current economic climate. As reported in The Wall Street Journal, the MSCI U.S. REIT Index returned 8.7% in 2011, more than four times the return of the Standard & Poor’s 500-stock index. REITs are a popular play in the current economy due to their steady dividends. REITs can avoid corporate income tax, provided they invest in real estate-related assets and pay out at least 90 percent of their income in dividends to investors, rather than reinvesting in their business.

Citizens & Northern (CZNC) is one of today’s biggest movers, up 1.9% to $20.99 (January 24 2012).  The Dow is down 0.5% to 12,608 and the S&P is currently down 0.2% to 1,311.  In the past 52 weeks, shares of Citizens & Northern have traded between a low of $13.10 and a high of $21.00 and are now at $20.99, which is 60% above that low price.  Over the last five market days, the 200-day moving average (MA) has gone up 0.3% while the 50-day MA has advanced 1.3%.  Based on a current price of $20.99, Citizens & Northern is currently 16.6% above its average consensus analyst price target of $17.50.  The stock should find initial support at its 50-day moving average (MA) of $17.91 and further support at its 200-day MA of $16.20.  Citizens & Northern Corporation is a holding company for Citizens & Northern Bank and First State Bank.  The Banks provide a full range of banking services, including deposit and loan products for personal and commercial customers, and trust services and insurance products.  Citizens & Northern operates in north central Pennsylvania.

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The Best Dividend Stocks for 2012 – Consumer Discretionary Sector

S&P recommends overweighting the S&P 500 Consumer Discretionary sector. Year to date through November 18, the sector index, which represented 10.7% of the S&P 500 Index, was up 1.1%, compared with a 3.3% drop for the S&P 500. In 2010, this sector index rose 25.7%, versus a 12.8% advance for the 500. There are 32 sub-industry indices in this sector, with Restaurants being the largest at 14.3% of the sector’s market value.

S&P equity analysts’ fundamental outlook on the Consumer Discretionary sector is positive. S&P Economics forecasts U.S. real GDP growth of 1.7% in 2012, and sees consumer spending increasing 2.2%. We anticipate that thematic drivers in 2012 will include technology advances, continued international expansion, continued market segmentation of the targeted consumer base (demographic considerations, etc.), secular changes in consumer behavior (online vs. traditional), advances in digital media technology, and further shifts to ROI-driven audience aggregation. According to Capital IQ, the sector trades at a P/E of 13.1X consensus estimated 2012 EPS, which is greater than the S&P 500’s projected P/E of 11.3X. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 0.9X is below the broader market’s 1.0X. The sector’s marketweighted STARS average of 3.8 (out of 5.0) is in line with the average of 3.8 for the S&P 500.

The S&P GICS Consumer Discretionary Index has completed a bullish, double-bottom reversal formation, so it appears to us that the correction is over. In addition, prices have jumped back above the bearish trendline that had been in place since the top in July, further confirmation, in our view, that the intermediate-term trend has turned bullish. However, prices have moved into a heavy layer of overhead supply that runs all the way up to the recent highs at 330, so the slope of the advance may become flatter as the sector tries to eat through this supply. Relative strength versus the S&P 500 recently hit a new bull market high. Our technical opinion on the Consumer Discretionary sector remains bullish.

In summary, S&P recommends overweighting the S&P Consumer Discretionary sector as strong emerging market revenue growth and a gradually expanding U.S. economy likely fuel above-average EPS growth, in our view, enabling market outperformance.

The individual stocks are shown in the table below.  These are the highest ranking dividend stocks based on equity summary score provided by Fidelity Investments.  The Equity Summary Score provides a consolidated view of the ratings of 10+ independent research providers on Fidelity.com.  It uses the providers’ relative, historical recommendation performance along with other factors to give you an aggregate, accuracy-weighted indication of the independent research firms’ stock sentiment.

Cedar Fair (FUN) owns and operates amusement and water parks in the United States and Canada.  FUN has a very bullish rating with a high dividend yield of 12.78%.  This stock has been touted by Jim Cramer on Mad Money in recent weeks.  It’s more of a turnaround stock as the consumer decides to do more enterteinment vis the themeparks in the U.S.

Autoliv, Inc. (ALV), is the leading supplier of safety parts for the auto industry. Products include seat belts, airbags, side-impact airbags, and electronics. Research and development is a vital part of the company’s strategy, as Autoliv regularly spends about 6% of sales to maintain a competitive advantage. Underscoring this notion, Autoliv holds 7% of all automotive safety patents. In 2010, total revenue was $7.2 billion, with U.S., European and Asian manufacturers accounting for roughly 30%, 30% and 40%, respectively.   Autoliv has developed– and executes — a great business strategy. Its niche businesses are lucrative, and stable. Additionally, management has demonstrated that it operates in the best interest of shareholder value.

P.F. Chang’s (PFCH) owns and operates two restaurant concepts in the Asian niche.  The Bistro chain consists of more than 200 full-service restaurants, which feature Chinese cuisine in a contemporary setting. Entrees at the Bistro range in price from $6 to $23, and the average check per guest is $20-$21. The Pei Wei concept, with 173 units, features a more modest menu of Asian cuisine, offering counter service and takeout food.  The average check at Pei Wei is between $9 and $10.  P.F. Chang’s PFCB reported weak third-quarter results, reflecting the tough environment restaurants are enduring. Although the near term will likely be rocky, we maintain our thesis that P.F. Chang’s is one of the more stable casual dining operators and holds a leading presence in the niche Asian dining segment. We think the firm is in good condition to withstand the fickle consumer environment, and we will be maintaining our fair value estimate. We believe the firm’s shares are currently undervalued.

The Best Dividend Stocks of 2012 - Consumer Discretionary Sector

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Quality Stocks with High Yield Dividends

With so investors seeking high yield, it’s important for income investors to find dependable high yield dividend payers that they can count on.  With projections for a slower growth economy amid historically low  interest rates, it’s now more important than ever to find these solid dividend paying companies as there are fewer places to turn to for high yielding investments without taking on unwelcomed risk.  By screening for stocks with market beating yields, double digit growth rates, above median increasing cash flows and a strong balance sheet, this screen seeks to do just that by finding those companies that could turn into long-term core holdings for an income producing portfolio.  And with a Zacks Recommendation of a Buy or at least a Hold, these stocks have the potential to become total return winners as well.

Dividend paying stocks can help you build out a well diversified portfolio.  And if projections for a slower growth economy come true, the investment vehicles with ‘something extra’, i.e., solid and dependable dividends, will become even more highly sought after as investors seek out the best total returns while keeping a watchful eye on risk.

This list is filled with high yield stocks, many above 10%, that are ranked buy or hold by Zachs Investment Research.  Some of the popular names include: FUN that is being recommenmded by Jim Cramer; FSC & MAIN that are monthly dividend payers, CXS & PMT that offer mortgage REIT yields; and several energy stocks for continuing dividends.  The table belows displays the list of high yield dividend stocks.

high yield dividend stock with high quality ratings

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