Monday, March 17, 2014

3 Dividend Stocks With Growth Potential

This post was written by Zach from DividendLadder.com

Dividend investing has been a part of my life for almost 15  years.  Initially I was drawn to the high yielding stocks and quarterly paychecks but over time I have matured as an investor.  Now I invest in these stocks because I want my capital deployed to companies that grow and return profits to shareholders.  That is why 95% of my investments are currently in dividend-paying stocks. 

I enjoy doing investment research which I believe is key to being a successful stock picker.  As Warren Buffet and many other wise investors have said you do not have to be an expert to win at investing.  Investing in companies I understand and expect to grow is the foundation for my strategy.  But still I enjoy making lists to help narrow down which companies I might put on my watch list.  This helps me stay focused and aware of what is happening with the general dividend market.

Today I thought I’d highlight 3 of my more interesting holdings and explain why I like each of them.  They are a bit off the beaten path for some investors but I believe they represent value and growth at a time when we need both badly. 


1. The Female Health Company (FHCO)

This stock has been beaten down in 2014 which has created an opportunity for value investors to step in.  The company’s main product is female condoms which are FDA approved.

During the most recent earnings report the Chairman made a long term case for this stock by saying that the recent decline in sales was due to public sector purchasing patterns that would not affect the long term growth of the company.   Parish cited the growing epidemic of HIV/Aids and unwanted pregnancy around the world as a source for demand.  More importantly the Planning 2020 program should drive significant demand over the coming years.  This program will increase access to contraceptives for over 100 million women in 70 countries over the next 5-6 years.

Female Health is still in the middle of a buyback program which uses excess cash instead of debt.  They have repurchased 1 million shares and are looking to buy another 1 million back over the short term.  FHCO is currently yielding 4% and could possibly boost its dividend when it makes its next announcement around March 27th.

2. TAL International (TAL)

This is a dividend growth stock.  The company has increased its dividend every quarter for 17 consecutive quarters (except for one in 2011).  Last year the dividend boost was 10% while the year before it was 15%.   Currently is its yielding 6.5% with a payout ratio of 63% and a 3 year income growth rate of 35%.

TAL leases container storage for global transportation.   Much of its business is sourced from China and Europe and while things have been lackluster in those regions lately  now may mark a great time for value investors to take a look.  The CEO recently explained that January was a stronger than expected month but that they would have to wait and see if that trend continued for 2014.  This is a long term holding for me.  I like the direction this company is headed over the next 10 years.

3. Cracker Barrel (CBRL)

I wish we had a Cracker Barrel closer to where I live.  The closest one is about an hour away.  If it was closer I’d be there at least once a month if not more.   The country cooking and casual feel brings people back day after day.  Neither of those reasons have helped the stock rank 18th on my best dividend list.

The dividend hikes have been flat out exciting with this stock.  Last year the company boosted its dividend by 50% and currently has a payout ratio of 58%.  Currently the stock is yielding 3% but there could be another dividend hike announced in early June. Cracker Barrel recently reaffirmed its guidance for 2014 but I am not too concerned with short term trends for this stock either as I see it being another 10+ year holding for my portfolio.


Full disclosure: I am long FHCO, TAL and CBRL.

7 comments:

  1. Cracker Barrel taps into something nostalgic and awesome: it reminds me of an America that I never knew. And they're always popular. I have never seen one that's empty: and that has to be a good sign for investors.

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    1. Good point. Foot traffic can be a great way to get a feel for how a business is doing. I've never seen one empty either.

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  2. First time I bought was 100 shares at .97 per share. Could of, would of, should of.

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  3. I come to your article First time and found very impressive and I found the post very useful as well as interesting.
    Free tips

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  4. Great insights to companies off the beaten path. I always enjoy hearing about up and coming opportunities for consistent dividends.

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  5. Interesting picks JC. I don't have Cracker Barrel in Hawaii, I usually visit the stores that I invest in. Always good to learn about new companies.

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  6. I continue holding on valiantly to FHCO. I also believe that it will pay dividends long term. I agree that there will be ebbs and flows in purchasing behavior, but there should be a viable long term pathway for the company. Recent moves downward in stockprice haven't made it easy to keep the faith.

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