2 Stock Picks Rich with Returns

04/02/2013 10:15 am EST

Focus: STOCKS

John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

From oil sands to luxury goods, John Dobosz of Forbes Dividend Investor finds success with undervalued, dividend-paying stocks.

Lately, earnings reports have been big movers of individual stocks. For instance, Darden Restaurants (DRI) topped Wall Street forecasts. Earnings fell 18% to $1.02 per share from last year, but revenue rose 5% to $2.26 billion.

Shares of Darden, the operator of restaurants including Red Lobster, Olive Garden, and Capital Grille, now trade for 15.7 times expected earnings for the current year ending May 31. That’s no huge bargain, but with another 50-cent quarterly dividend on the way and some impressive chart action, there’s no reason to unload the stock if you already own it.

What’s important to remember about stocks in our Top 25 is that these are rankings based on an in-house model we created that seeks stocks with stable and growing dividends and current valuations below average multiples of earnings, sales, and book value.

No regard is given to a stock’s technical picture, although I have yet to recommend a stock as it hits new highs. Sometimes there are happy coincidences of fundamental and technical attractiveness. Our goal is to earn better returns than the overall market, and to produce a stream of reliable and growing dividend income.

Recommendations like Apple (AAPL), Newmont Mining (NEM), and France Telecom (FTE) are making strong bounces off support that may signal new bullish trends after heavy sell-offs.

Apple retains a spot on this week’s Top 25. It still trades at a meaty 45% discount to its average price-to-earnings ratio over the past five years. Meanwhile, Denver-based Newmont has been a beneficiary of gold’s three-week bounce back above $1,600 per ounce.

This week’s two recommendations, Hi-Crush Partners (HCLP) and Coach (COH), are both on the Top 25. Hi-Crush sells sand used in fracking. Public only since August, it yields 10.3%.

Coach, the luxury leather specialist, has a much smaller yield at 2.4%, but the quarterly dividend has grown every year from 7.5 cents per share in June 2009 to the 30-cent present payout every three months.

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