Dividends And Growth Combined: 5 Top Stock Picks That Could Outperform The Market

Who’s not dreaming about a long-term orientated portfolio that increases in value and pays you each year a higher dividend that beats inflation? I do!

The good think is that it's possible to create such a big income source with small money. I've also created a virtual portfolio with income focus in order show how dividend growth investing can look like.

Back to my daily stock idea that I often publish on this blog. I've created some ideas what stocks delivered good returns in the past and can also possibly outperform the overall market within the next years. It’s a combination of growth and dividends. These are my main criteria:

- Market cap is greater than $100 million.

- Dividend yield is greater than the dividend yield of the industry.

- The payout ratio is less than 100%.

- Past 5 years dividend growth rate is bigger than the dividend growth of the industry.

- Average annual earnings growth estimates for the next 5 years is greater than 10%.

- Past 5 years EPS growth is greater than the average industry value.

Attached are my five favorite picks with more fundamentals. The screen delivered some more results like the luxury brand company Coach, the German industrial conglomerate Siemens or the home improvement stock Leggett & Platt.

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3 Top Dividend Stocks With Low Payouts And Attractive Price Ratios

Cheap stocks are rare in a low interest environment. But cheap is also a question of the alternatives. You need to compare your investment with the industry average. 

Today I would like to present you three attractively valuated dividend growers with a very low dividend payout, all compared to their industry rivals. These are my criteria:

- Market cap is greater than $100 million.

- Dividend yield is greater than the dividend yield of the industry.

- The payout ratio is less than 100%.

- The annual rate of dividend growth over the past five years is greater than 5%.

- Annual rate of dividend growth over the past five years above the industry.

- Average annual earnings growth estimates for the next 5 years is greater than 5%.

- Average annual earnings growth for the past 5 years is greater than the average annual earnings growth of the industry.

20 companies fulfilled these criteria and some of them don't have a long dividend growth history. Below are some of my favorites, they are not selected by the longest dividend increases. 

I don't recommend them to buy or sell them. It's only a quick selection. Other stocks of interest are Dover, Deere, Medtronic, CSX, Illinois Tool Works and Coach.

Please don't be focused on a few stocks. A well diversification helps you to keep the big stock market risks small.

Agrium (NYSE:AGU) has a market capitalization of $12.88 billion. The company employs 14,500 people, generates revenue of $16.686 billion and has a net income of $1.498 billion. Agrium’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $2.637 billion. The EBITDA margin is 15.80 percent (the operating margin is 12.54 percent and the net profit margin 8.98 percent).

Financial Analysis: The total debt represents 24.79 percent of Agrium’s assets and the total debt in relation to the equity amounts to 57.27 percent. Due to the financial situation, a return on equity of 22.40 percent was realized by Agrium. Twelve trailing months earnings per share reached a value of $9.12. Last fiscal year, Agrium paid $1.00 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 9.75, the P/S ratio is 0.77 and the P/B ratio is finally 1.92. The dividend yield amounts to 3.38 percent and the beta ratio has a value of 1.43.

Long-Term Stock Price Chart Of Agrium (AGU)

Long-Term Dividend Payment History of Agrium (AGU)

Long-Term Dividend Yield History of Agrium (AGU)

Helmerich & Payne (NYSE:HP) has a market capitalization of $8.41 billion. The company employs 9,410 people, generates revenue of $3.387 billion and has a net income of $721.45 million. Helmerich & Payne’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $1.393 billion. The EBITDA margin is 41.13 percent (the operating margin is 28.24 percent and the net profit margin 21.30 percent).

Financial Analysis: The total debt represents 1.28 percent of Helmerich & Payne’s assets and the total debt in relation to the equity amounts to 1.80 percent. Due to the financial situation, a return on equity of 17.43 percent was realized by Helmerich & Payne. Twelve trailing months earnings per share reached a value of $6.66. Last fiscal year, Helmerich & Payne paid $0.87 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 11.85, the P/S ratio is 2.48 and the P/B ratio is finally 1.89. The dividend yield amounts to 2.53 percent and the beta ratio has a value of 1.20.

Long-Term Stock Price Chart Of Helmerich & Payne (HP)

Long-Term Dividend Payment History of Helmerich & Payne (HP)

Long-Term Dividend Yield History of Helmerich & Payne (HP)

UnitedHealth Group (NYSE:UNH) has a market capitalization of $74.24 billion. The company employs 133,000 people, generates revenue of $110.618 billion and has a net income of $5.526 billion. UnitedHealth Group’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $10.563 billion. The EBITDA margin is 9.55 percent (the operating margin is 8.37 percent and the net profit margin 5.00 percent).

Financial Analysis: The total debt represents 20.71 percent of UnitedHealth Group’s assets and the total debt in relation to the equity amounts to 53.74 percent. Due to the financial situation, a return on equity of 18.58 percent was realized by UnitedHealth Group. Twelve trailing months earnings per share reached a value of $5.29. Last fiscal year, UnitedHealth Group paid $0.80 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 13.94, the P/S ratio is 0.67 and the P/B ratio is finally 2.41. The dividend yield amounts to 1.52 percent and the beta ratio has a value of 0.76.

Long-Term Stock Price Chart Of UnitedHealth Group (UNH)

Long-Term Dividend Payment History of UnitedHealth Group (UNH)

Long-Term Dividend Yield History of UnitedHealth Group (UNH)

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New Dividend Portfolio Buy: Railroad Company Union Pacific

I purchased my first railroad stock for the Dividend Yield Passive Income Portfolio last Friday.

It was the railroad company Union Pacific (UP). Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, provides rail transportation services in North America. The company offers freight transportation services for agricultural products, including grains and commodities, food, and beverage products; and automotive products, such as imported and exported shipments, finished vehicles, and automotive parts and materials.

I paid $154.75 per share which resulted in $1,242.92 net cost. The new stake will give me only around $25 bucks in dividend income per year. But the potential is available to get higher dividends in the upcoming years. Earnings are expected to grow by 13.68 percent of the next five years and the payout ratio is only at 30.2 percent while the long-term-debt to equity ratio is at 0.44.

Latest Portfolio Transactions (Click to enlarge)

Portfolio Holdings Dividend Yield Passive Income I (Click to enlarge)

Portfolio Holdings Dividend Yield Passive Income II (Click to enlarge)

UNP is a Dividend Challenger who raised dividends over a period of seven consecutive years. The five year dividend growth rate amounts to 29.8 percent.

I believe that UNP is one of the most stabile railroads on the market. For sure, stocks like NSC, ARII or CSX pay better dividends but the quality is not the same and debt ratios of them are also a bit higher.

The current yield amounts to 2.04 at a forward P/E of 14.14. For the estimated growth a current P/E of 17.61 for the biggest player in the market is ok in my view.

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For readers who are new to the matter and my dividend growth philosophy: I funded a virtual portfolio with 100k on October 04, 2012 with the aim to build a passive income stream that doubles each five to ten years. I plan to purchase each week one stock holding until the money is fully invested. The total number of constituents is expected at 50 – 70 companies and the dividend income should be at least at $3,000 per year.

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The stock holdings are up 7.63 percent since the date of funding. In addition, I received around $1,000 in cash dividends. Due to the slow purchase process and high amount of cash since October 2012, the full portfolio is only up 6.34 percent.

Portfolio Performance (Click to enlarge)

The full year dividend income is now estimated at $2,416.32 annualized. With a yield on cost of 3.44 percent it’s still possible to hit the mark of at least $3,000 per year despite the fact that the current trade is far below this ratio.

Here is the income perspective of the portfolio

Sym	Name	P/E Ratio	Dividend Yield	Buy	# Shrs	Income	Value
TRI	Thomson Reuters C	26.38	3.74	28.90	50	$64.75	$1,736.00
LMT	Lockheed Martin C	14.19	3.64	92.72	20	$92.00	$2,545.00
INTC	Intel Corporation	12.23	3.98	21.27	50	$45.00	$1,172.00
MCD	McDonald's Corpor	17.79	3.17	87.33	15	$46.20	$1,460.25
WU	Western Union Com	11.68	3.24	11.95	100	$60.00	$1,841.00
PM	Philip Morris Int	16.77	3.99	85.42	20	$68.78	$1,755.60
JNJ	Johnson & Johnson	19.76	2.85	69.19	20	$50.80	$1,771.40
MO	Altria Group Inc	15.79	5.21	33.48	40	$72.00	$1,393.60
SYY	Sysco Corporation	19.54	3.4	31.65	40	$44.40	$1,315.20
DRI	Darden Restaurant	15.38	4.25	46.66	30	$61.50	$1,451.10
CA	CA Inc.	13.31	3.28	21.86	50	$50.00	$1,519.50
PG	Procter & Gamble	20.27	2.97	68.72	25	$58.20	$1,976.25
KRFT	Kraft Foods Group	17.48	3.69	44.41	40	$80.00	$2,169.60
MAT	Mattel Inc.	18.64	3.35	36.45	40	$55.60	$1,681.20
PEP	Pepsico Inc. Com	18.82	2.77	70.88	20	$44.20	$1,606.40
KMB	Kimberly-Clark Co	20.17	3.34	86.82	15	$47.55	$1,435.35
COP	ConocoPhillips Co	11.47	3.88	61.06	20	$52.80	$1,383.80
GIS	General Mills In	17.52	2.8	42.13	30	$41.10	$1,477.50
UL	Unilever PLC Comm	18.29	3.46	39.65	35	$47.01	$1,375.15
NSRGY	NESTLE SA REG SHR	18.27	3.29	68.69	30	$65.31	$2,007.00
GE	General Electric	17.65	3.1	23.39	65	$48.10	$1,545.70
ADP	Automatic Data Pr	25.7	2.35	61.65	25	$43.50	$1,852.25
K	Kellogg Company C	23.03	2.96	61.52	25	$44.50	$1,516.00
KO	Coca-Cola Company	20.24	2.85	38.83	40	$43.80	$1,547.60
RTN	Raytheon Company	13.4	2.71	57.04	20	$42.00	$1,569.60
RCI	Rogers Communicat	11.2	4.04	46.5	50	$84.00	$2,092.50
GPC	Genuine Parts Com	18.07	2.62	77.06	20	$42.12	$1,596.00
TSCDY	TESCO PLC SPONS A	236	3.89	17.08	110	$75.68	$1,951.18
APD	Air Products and	22.57	2.55	85.71	15	$40.50	$1,592.25
GSK	GlaxoSmithKline P	19.49	4.63	52.16	30	$71.13	$1,542.30
WMT	Wal-Mart Stores	14.39	2.45	79.25	20	$36.16	$1,487.20
BTI	British American	15.99	3.99	111.13	23	$96.14	$2,425.58
CHL	China Mobile Limi	10.88	4.03	55.32	25	$55.95	$1,403.75
MMM	3M Company Common	18.5	2.11	110.27	15	$37.43	$1,779.00
TUP	Tupperware Brands	18.05	2.33	80.98	15	$29.40	$1,275.00
IBM	International Bus	13.54	1.89	197.09	16	$57.60	$3,074.72
HAS	Hasbro Inc.	18.8	3.27	44.09	30	$45.60	$1,404.60
T	AT&T Inc.	26.32	5.21	34.47	30	$53.70	$1,029.60
WAG	Walgreen Co. Comm	23.31	2.14	44.25	30	$34.20	$1,603.80
AFL	AFLAC Incorporate	8.46	2.3	59.39	20	$28.00	$1,220.80
TGT	Target Corporatio	15.45	2.36	68.69	32	$48.32	$2,040.32
CSCO	Cisco Systems In	13.06	2.55	25.12	90	$55.80	$2,188.80
DE	Deere & Company C	9.55	2.33	84.11	15	$29.10	$1,237.35
RGR	Sturm Ruger & Co	12.36	3.3	51.65	20	$38.52	$1,189.40
LO	Lorillard Inc Co	13.54	4.99	42.3	30	$65.00	$1,320.60
UNP	Union Pacific Cor	17.65	1.85	154.75	8	$22.88	$1,238.00
						$2,416.32	$75,796.80
						Average Yield	3.19%
						Yield On Cost	3.44%

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