Three Dividend Stocks That Will Fetch High Yields

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

Dividend growth stocks are an excellent way of increasing the return from your original investment. I generally tend to hold on to these stocks for a while. A stock with an ever-increasing dividend yield will pay out higher returns on the original amount thanks to the power of compounding. So let’s take a look at three of these companies whose shares might be able to fetch high yields in the near future; or in other words, whose dividend growth rate has been fairly good.

Amgen (NASDAQ: AMGN) is a pioneer in the pharmaceuticals division and has grown to be the one of the largest biotechnology companies in the world. Amgen launched some of the biotech industry's first blockbuster medicines, including two of the most successful drugs in history -- Epogen, for treating anemia, and Neupogen, which helps cancer patients receiving chemotherapy avoid infections. Amgen paid $0.26 a share for every quarter of 2011 as a dividend, and increased that to pay $0.38 a share every quarter of 2012.

In March 2012, the FDA approved an alternative to Epogen. The new drug, Omontys, was developed by a small company called Affymax in partnership with a Japanese company named Takeda. Omontys has an advantage in the sense that it needs to be consumed once a month, as opposed to several times a week in the case of Epogen. Mercera is another drug that has entered the market recently and has been doing well in Europe. Foreseeing this, the management at Amgen moved quickly to secure two large deals. Before Omontys was approved, Amgen made sure to lock Affymax out of the market as best it could by signing contracts with the two biggest dialysis chains in the U.S. These two chains together treat around two-thirds of the nation's roughly 400,000 dialysis patients.

The numbers for Amgen look good too. Based on the product pipeline, analysts forecast earnings of 10% in each of the next five years, which is far better than the 6% of the previous 5 years. The company has a fairly staggering profit margin of 34% and has a cash stockpile exceeding $19 billion. The company isn’t debt free, but debt is at fairly manageable levels at 50% of capitalization. Amgen clearly noted in its 2011 policy statement, “We expect to grow the dividend meaningfully over time. Through 2015, we expect to return on average, around 60% of net income to shareholders through dividends and share repurchases.”

CISCO (NASDAQ: CSCO) is a stock that’s getting clobbered nowadays. Cisco, best known for its switches and other networking devices, has a 65% worldwide market share in Ethernet switches that crushes the next largest competitor -- Hewlett Packard, which has an 8% market share. Government spending isn’t expected to increase and the numbers from corporations don’t look great either, so that means that the company isn’t expected to do well in the short-term.

But the experts seem to like the stock. Out of 26 current analysts, there are zero “underperforms,”18 “outperforms” or “buys”, and 8 "neutrals" or "holds." So this may be a good stock to get into, considering that the share price is taking a nice haircut. Cisco has an attractive 22% operating margin, $49 billion in cash, and only $16 billion in debt. The company began paying dividends in March 2011 at an annual rate of $0.24 per share, and doubled the dividend in 18 months to a current rate of $0.56 per share. Even at the higher rate, payout is conservative at 37% of 12 months EPS.

Wellpoint (NYSE: WLP) provides healthcare coverage to 34 million patients in 14 states and is the second-largest U.S. health insurer, behind United Healthcare. 2013 will be an important year for the company as it tries to reposition itself to be prepared for a fairly different healthcare environment. The company plans to make significant investments in areas that include exchanges, Medicare, duals, as well as other initiatives. In addition, the company is planning on expanding its offering in Medicaid through its acquisition of Amerigroup.

Moving forward in a world of Obamacare, it is likely that WellPoint will see long-term gains in enrollment, offset by a decline in profit margin. Analysts expect the company to grow its revenues by 10% in the next 5 years. The company's June quarter balance sheet showed cash totaling $20.3 billion, or $62 a share, exceeding debt of only $11.9 billion. It seems like a fairly good time to buy shares in a company with traditionally high profitability levels. 

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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of WellPoint. Motley Fool newsletter services recommend WellPoint. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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