Three Growing and High Yielding Dividend Stocks

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

Investors get two sources of income from investments: dividends and capital gains. If the company is growing its earnings, it will increase its dividend payments to its shareholders, which could in turn help boost the company’s stock price. In this post I screen for companies that might provide suitable income to investors by using the following criteria: (1) the dividend yield is higher than 4%, (2) the dividend growth rate (in ten years) is more than 30%, (3) the market cap is larger than $1 billion, (4) the payout ratio is maximum 60%, and (5) the EV/EBITDA is less than 10. Here are the three top companies that I found.

Highly leveraged media company

Rogers Communications (NYSE: RCI) is a diversified media company, operating in four main business segments: Wireless, Cable, Business Solutions and Media. Most of its operating revenue in the first quarter of 2013, CAD 1.76 ($1.67) billion, or 58% of its revenue, was generated from the Wireless segment, while the Cable segment ranked second with CAD 861 ($815) million in revenue. Those two segments are also the two big operating profit contributors, delivering CAD 765 ($724) million and CAD 429 ($406) million, respectively, in first quarter profits. What makes me worry about the company is its weak balance sheet. As of March 2013, it had nearly CAD 4 ($3.78) billion in equity, CAD 1.43 ($1.35) billion in cash and as much as CAD 10.8 ($10.22) billion in both long and short-term debt.

In the past ten years, Rogers has increased its dividends from CAD 0.05 ($0.05) in 2003 to CAD 1.58 ($1.50) in 2012, marking annualized growth of more than 41%. The payout ratio is quite decent, at only 47.6%. Rogers is trading at $38.80 per share, with the total market cap of $20 billion. The market values Rogers at only 6.47 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). The dividend yield seems to be quite juicy, at as high as 4.4%. For the full year 2013, Rogers expected to generate around $4.86 billion to $5 billion in adjusted operating profit, with the pre-tax free cash flow coming in at $2 billion. The annual dividend might reach $1.74 per share for the full year 2013.

The MLP with high yield

Terra Nitrogen Company (NYSE: TNH) is limited partnership operating as nitrogen fertilizer product manufacturer, selling 2.4 million tons of nitrogen fertilizer for more than $780 million in net sales and $560.8 million in net earnings in 2012. The majority of its sales, $571.2 million, or 73.2% of the total revenue, was generated from the sales of UAN, while $204.3 million in sales came from Ammonia products. CF Industries owns around 75% of the total outstanding common units and all of its Class B common units.

In the past ten years, Terra Nitrogen has paid consistently positive but fluctuating dividends. The dividend has been on the rise, climbing from $0.25 per share in 2003 to $16.86 per share in 2012. In the past twelve months, its dividend per share stayed at $15.96 per share, with the payout ratio of 34.7%. Terra Nitrogen is trading at $218.40 per share, with a total market cap of $4.1 billion. The market values Terra Nitrogen at only 6.11 times its trailing EBITDA. Terra Nitrogen offers quite a juicy yield, at 8.6%.

A growing restaurant chain

Darden Restaurants (NYSE: DRI) is a restaurant chain operating around 820 restaurants under many brand names, including Olive Garden, LongHorn Stakehouse and Red Lobster. In the past ten years, Darden has been paying increasing dividends, from $0.08 per share in 2003 to $1.72 per share in 2012, marking an annualized growth rate of 35.9%. In the past twelve months, its dividend payment came in at $1.93 per share, with the payout ratio of 58.9%. Darden is trading at $51.50 per share, with a total market cap of $6.7 billion. The market values Darden at around 8.9 times its EBITDA. At the current trading price, Darden offers its shareholders quite a juicy dividend yield of 4.3%.

Looking forward, Darden seems to be optimistic about its near term future. For the full year 2014, the company estimates that its operating cash flow could be higher than the operating cash flow of $950 million in 2013, thanks to comparable store sales growth, higher margins and new unit growth. The unit growth is expected to be around 3.7% with the 80 new restaurants being opened by the end of 2014. It also expected to have 4%-6% growth in adjusted EPS, due to the lower acquisition and purchasing accounting cost for Yard House acquisitions.

My Foolish take

All three stocks, with their good historical dividend growth, decent payout ratio and low valuation, could fit well into investors’ income portfolios. Among the three, I like Darden the most because the company could experience good growth in its operating performance in the next year, with higher operating cash flow and higher EPS. Moreover, investors could get quite a decent yield at its current trading price.

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Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Rogers Communications (USA). The Motley Fool owns shares of Darden Restaurants. 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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