Four Favorites for Income

09/18/2013 9:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

Income investors especially prize consistency. In our review of stocks offering consistent income, we looks for S&P 1500 companies with at least ten straight years of higher dividends, reports Richard Moroney, editor of Dow Theory Forecasts.

From that group, we focus on several that could reward investors with long time horizons, who seek a steady and growing source of income from dividends.

Aflac (AFL) seeks to keep its dividend in line with growth from operating earnings per share, before the impact of currency translation; the company generates more than three-fourths of its sales in Japan.

In July, management projected 5% profit growth for 2013. And in October last year and the year before, Aflac raised its quarterly dividend.

Looking ahead, a law in the works could leave Aflac with extra cash to help cover its dividend growth.

Several proposals in Congress would require a special, lower tax rate on all foreign profits, rather than current 35% rate currently charged only when companies bring profits into the US.

Aflac could benefit from a lower tax rate, since it regularly repatriates cash from Japan to fund dividends and stock buybacks, paying the higher tax rate.

Helmerich & Payne (HP) has paid a dividend without interruption since 1959 and raised the distribution in 40 straight years.

Following a pair of hikes in less than 12 months, Helmerich's quarterly dividend stands at $0.50 per share, compared to $0.07 per share a year ago.

In the midst of the US rig-replacement cycle, H&P continues to pick up market share. The company's sales growth has decelerated in five consecutive quarters, a trend projected to continue into the September quarter.

But at 11 times trailing earnings, H&P trades 14% below the median oil-and-gas driller in the S&P 1500 and 18% below its three-year average.

The stock also scores above 80 in Quadrix for price/cash flow ratio and enterprise ratio, two of the three most effective factors in the past decade.

Dover (DOV), a maker of specialized industrial products and manufacturing equipment, is being initiated as a Long-Term Buy. Dover announced a 7% hike to its quarterly dividend in August, marking 58 straight years of increases.

Yielding 1.8%, the stock pays out a reasonable 31% of its profits in dividends. Stock buybacks have shaved 7% from the share count in the past year.

With an Overall rank of 93, the stock scores above 60 in Quadrix for all six category scores. In the past three years, Dover has generated annualized growth of 10% for sales, 22 for per-share earnings, and 15% for cash provided by operations.

Analyst estimates project Dover will grow per-share profits 18% to $1.50 in the September quarter and 19% for the year. Shares trade at 16 times estimated 2013 earnings, a 10% discount to the median for industrial-machinery stocks in the S&P 1500 Index.

Qualcomm (QCOM) supplies much of the equipment tucked inside of mobile devices. The new form MotoX smartphone from Google features an estimated $43 in Qualcomm components, which equates to about 21% of each phone's supply costs.

Qualcomm equipment also accounts for at least $20 of every Galaxy S4 phone sold by Samsung Electronics (SSNLF).

Qualcomm's sales have advanced at double-digit rates for 11 straight quarters, a trend likely to continue in the September (projected to rise 30%) and December (17%) periods.

Free cash flow jumped 29% to $4.73 billion in the past year, pushing Qualcomm's cash position to $11.46 billion, compared to just $20 million of long-term debt.

Following a 40% hike to the quarterly dividend in March, Qualcomm yields 2.1%, well above its five-year average of 1.6% and the current average of 1.5% for S&P 500 technology stocks.

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