These 4 Companies Just Became More Attractive

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Aside from periods of irrational exuberance, most gains in this market have not been created by fundamental improvements in the global economy. Our economy is barely trucking along, with very little growth between 2% and 3%. However, high-yield investments can offer a sanctuary of sorts, a place where you can invest money and know that a cushion exists. Therefore, I am looking at four large-cap stocks that just recently became more attractive after raising their dividends.

<table> <thead> <tr><th> <p>Company</p> </th><th> <p>Dividend Hike Quarter-Over-Quarter</p> </th><th> <p>Dividend Hike Over 5 years</p> </th><th> <p>2014 Dividend Yield</p> </th></tr> </thead> <tbody> <tr> <td> <p><strong>Darden Restaurants</strong> <span class="ticker" data-id="203330">(NYSE: <a href="">DRI</a>)</span></p> </td> <td> <p>10%</p> </td> <td> <p>175%</p> </td> <td> <p>4.29%</p> </td> </tr> <tr> <td> <p><strong>Oracle Corporation</strong> <span class="ticker" data-id="204823">(NYSE: <a href="">ORCL</a>)</span></p> </td> <td> <p>100%</p> </td> <td> <p>140%</p> </td> <td> <p>1.46%</p> </td> </tr> <tr> <td> <p><strong>Target Corporation</strong> <span class="ticker" data-id="205706">(NYSE: <a href="">TGT</a>)</span></p> </td> <td> <p>19.4%</p> </td> <td> <p>170%</p> </td> <td> <p>2.47%</p> </td> </tr> <tr> <td> <p><strong>Caterpillar </strong><span class="ticker" data-id="203043">(NYSE: <a href="">CAT</a>)</span></p> </td> <td> <p>15%</p> </td> <td> <p>43%</p> </td> <td> <p>2.88%</p> </td> </tr> </tbody> </table>

Expectations of Growth With High Yield

Darden Corporation has traded flat over the last year, mostly due to a weak period between September 2012 and January 2013. During this period, there was reason to think that large fundamental declines could occur as same-store sales faltered.

Today, store sales are positive at all three of Darden’s restaurants, and after an aggressive capital return program, shares are very attractive. In this economy, with the market so volatile, restaurants are often a good secular investment. In my opinion, with projected growth of 6-8%, Darden is a clear leader and should be a safe investment moving forward.

New Partnerships and Synergies Could Produce Gains

Oracle is not what most what call “high-yield,” but the company has chosen to return capital to shareholders and is doing so at a rapid rate. The stock’s yield is currently about a half percent below the S&P 500, although at 9.5 times next year’s earnings, the stock also trades significantly below the market.

With that said, I think you have to like Oracle. The stock is lower by 8% YTD and has seen two weak quarters back-to-back. However, after new partnerships with the likes of Salesforce, Netsuite and Microsoft, analysts believe that additional synergies could be seen in the year(s) ahead. These partnerships should improve industries where Oracle has seen troubles. In my opinion, these partnerships and Oracle’s valuation make it a good long-term buy.

The “Little Brother” Gives You an Edge

Target is the quintessential secular play, but also has room to grow as Wal-Mart’s little brother. With a forward yield of 2.47%, an investment in Target returns slightly more than the S&P 500. However, with it trading at 12.80 times next year’s earnings and 0.6 times sales, Target is much cheaper than the S&P 500 (15% and 50% respectively).

If you are an investor who seeks a safe secular investment, these little distinctions are what you seek; as Target offers an edge in both valuation and dividend yield versus the broader market. Also, might I add long-term growth trends that exceed the overall market – thus, Target is an attractive stock.

Temporary Weakness Creates Deep Value

Caterpillar has had a rough year, losing 8% of its value in 2013. Unlike the others, Caterpillar is cyclical and needs a strong global economy in order to produce strong fundamental gains. During its last quarter, total sales fell 17%. As a result, expectations for Caterpillar are low, and the stock is very cheap at just 11 times earnings due to its fundamental performance.

The goal of most value investors is to buy when stocks are cheap and then sell when they are expensive. Caterpillar is cheap, and although it has experienced some fundamental weaknesses, it has the presence in construction, mining, and equipment to see fundamental gains once the market improves. Until then, a 2.88% dividend yield won’t hurt your portfolio.

Final Thoughts

As a collection, we have a leading restaurant, a necessary technology company, a large retailer, and an industrial stock. Most would consider this a very diversified, safe, high-yield portfolio.

In my opinion, each of these companies are among the very best in their respective industries, and the fact that each is raising its dividend proves that each company is confident in its future. As a result, I would further explore each stock, as one, if not all, might make a good addition to your portfolio. 

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Brian Nichols has no position in any stocks mentioned. The Motley Fool owns shares of Darden Restaurants and Oracle.. 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!

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