Dividend Stocks Ideas from Todd Veredus Portfolio
Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you are on the lookout for solid dividend growth performances and great fundamental conditions, consider these dividend stocks I picked from the portfolio of Todd Veredus Asset Management Llc, a fund manager with over $3 billion assets under management. These stocks’ annualized dividend payments have been growing at double-digit rates. Their performances in terms of revenue growth and profitability are all impressive. All have below 40% payout ratio based on cash flow and P/E ratios that are under 20. With each stock, your dividend income is not just safe; it is likely to grow as well. Read on and see for yourself.
Sources: whalewisdom.com; finviz.com, and nasdaq.com; marketwatch.com; data retrieved April 9, 2013
Philip Morris International, Inc. (NYSE: PM)
The tobacco company remains an attractive source of stable dividend income for value investors. It has recently posted a positive earnings surprise. This was a result of a positive revenue growth, the latest of which was 4.59% year-on-year, and a consistent double-digit profit margin. Philip Morris International has grown its annualized payout significantly by an average rate of 13% in the last 3 years; its annualized dividend amount is an impressive $3.24 per share. It is unlikely though that such growth can be sustained as the payout ratio based on cash flow is already at over 57% in 2012. However, even if the current growth rate of dividend will not be sustained in the future, the huge amount would suffice to lure dividend investors. Meanwhile, the company’s P/E ratio is currently at 18.27 with a forward ratio of 14.80.
Looking forward, I believe that Philip Morris has the international market to profit from. Selling cigarettes in over 200 countries where smokers would always buy no matter what the economy looks like is enough proof that dividend payouts will likely be sustained. There is great opportunity that PM is now enjoying from fast-growing Asia. In 2012, the share of revenues from Asia to total revenue swelled from 26% to 36%. There are concerns over projected volume declines due to new taxation laws implemented in some Asian countries but on the overall, the region remains to be a key driver of growth for the company. And with the growth prospects of this region, the tobacco company will remain an attractive piece of investment.
Union Pacific Corporation (NYSE: UNP)
The company has been paying significantly higher dividends every year. The annualized payout of $2.49 per share with an above-30% growth in payment is enough to satisfy any dividend-hungry investor. Meanwhile, the payout ratio based on cash flow is at a sustainable level of below 19%. In terms of earnings, UNP has exceeded consensus estimates in the latest quarter. These are attributed to positive revenue growth and double-digit profit margins. In fact, its net operating cash flow grew by roughly 5% in 2012. Being aware of these, UNP’s stock price has rallied quite well in the current year. With a P/E ratio of 16.86 and a forward ratio of 12.99, I believe its growth potential will lead it to an even higher ground.
A leading railroad company, Union Pacific is benefiting from the intensified trade between the United States and Mexico. Union Pacific is the only railroad company that connects to Mexico’s six major trade junctions. The Mexican business accounts for 10 percent of the company’s freight revenues and this registered a 16% and 8% growth in 2011 and 2012 respectively. The expected growth in the Mexican economy will drive the already huge trade activities happening between the two countries. This makes Union Pacific, a well-positioned company in the US-Mexico trade, a very attractive company indeed.
Ensco plc (NYSE: ESV)
This offshore drilling services provider has grown its dividend payout by three-digit rate in the last 3 years. The payout ratio based on cash flow is at a sustainable level of 15.82%. Why is there an emphasis always on payout ratio based on cash flow? Well, it is the more accurate way to look at the company’s ability to grow or sustain its payout since dividend payment is made in cash. So what are the plus factors for Ensco? For one, the company has been exceeding earnings estimates in the past 3 quarters. Recently, quarter revenues grew by about 8% year-on-year and the profit margin is at a high 28.42%. In fact, the company has tripled its net operating cash flow in 2012 to $2.2 billion from a mere $731.8 million in 2011. It’s very easy to get impressed with Ensco with its P/E ratio at 11.21 and a forward P/E of 7.50.
Ensco’s growth in 2013 is seen to come from its activities in growth areas - Australia, Malaysia, and Indonesia. The revenues from contract deepwater drilling are about to swell as a result of the multi-year projects the company has in Brazil, West Africa, Mediterranean region, and the Southeast Asia.
BlackRock, Inc. (NYSE: BLK)
This publicly owned investment management firm is a dividend monster paying $6.00 per share in 2012. If it can sustain the 26% average growth in payouts that it had in the last three years, I don’t know how else to call it. With a payout ratio based on cash flow of 36.55%, a double-digit revenue growth performance, and a 26% profit margin, I can’t see a significant slowing down in the immediate future. And even if it will slow down a bit, it would still spit out a very huge dividend income given its already high level. The stock price is in an uphill climb. Its P/E ratio is at 18.14 while the forward ratio is only 14. If you don’t have BLK yet in your portfolio, start considering it today. The earnings forecasts for all quarters of 2013 have been getting a lot of upward revisions and no downward revision has been given out so far.
These dividend gems out of the portfolio of Todd Veredus offer very attractive dividend income. It is a powerful mix of stocks that promises not only safety but also income growth given their current performances and huge growth prospects.
Aubrey Tabuga has no position in any stocks mentioned. The Motley Fool recommends BlackRock. The Motley Fool owns shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!