These 2 Dividend Aristocrats Have The Best Earnings Growth

Are you searching for dividend paying stocks you can depend on?  The Dividend Aristocrats is an elite group of dividend stocks, created by Standard & Poors, whose members have increased their dividends for at least the last 25 consecutive years.  In fact, some of them have done so for many more years than that. This group lost a few members during the economic downturn, so it’s quite a testament to the earnings power and management of those stocks that not only survived the crisis, but also managed to increase their dividend payouts during it.

We looked for stocks within this group who had consistent earnings growth, good mgt. metrics, and valuations that haven’t gone sky high, via the rally of the last few months, and we found these 2 impressive companies from 2 different sectors and industries, Nucor Steel, and VF Corp:

Earnings & Valuations: These are 2 of the very few Dividend Aristocrats stocks which achieved strong growth not only in their most recent fiscal year, but also impressive quarter-over-quarter earnings and sales growth, AND, have strong growth forecasts for their next fiscal year. NUE looks undervalued vs. its Steel & Iron industry peers, on a PEG, P/E, and Price/Sales basis, but is pricier on a Price/Book basis.

VFC’s earnings industry comps also look superior.Their projected Next Fiscal Year EPS growth is lower than the industry avg., since the industry is bouncing back from very poor growth in the most recent fiscal year and most recent quarter.  Having gained over 26% in the past 6 months, VFC’s share price gains have pushed its valuations higher as well, particularly Price/Sales:

Dividends: With its above-avg. dividend, NUE is listed in the Industrials section of our High Dividend Stocks By Sectors Tables.  Both of these stocks have upcoming March ex-dividend dates:

Covered Calls: If you want to increase your yields over the short term, selling covered call options can offer you some lucrative additional income. In addition to often paying you fat premiums, selling options is a way to generate quick income from stocks that you own or wish to buy. Both of these 2 covered call trades feature high options yields, and have strike prices that are higher than their respective stocks’ current share prices. The higher strike price gives you the possibility of potential price gain profits, in addition to your dividend and call option income. If you’re more bullish about a stock, you may want to sell covered calls at a higher strike price – the difference between the strike price and the stock’s cost equals your potential price gain, or assigned yield.

These two 3-5 month trades have call options that outpay the dividends by up to 6 times.

Performance & Technical Data: Both NUE and VFC have been among the best stocks to buy for price gains over the past few months, but NUE is still down for the past year:

Cash Secured Puts: Since these stocks are near their 52-week highs, you may want to consider another strategy, selling cash secured puts, in order to achieve a lower break-even. The VFC  $145 put option is below VFC’s current price, and gives you a break-even of approx. 6% below VFC’s price. The put options pay out up to over 8 times more than the dividends do over this short term.

If you want to be even more conservative, and get a lower break-even price, you can sell cash secured put options at a strike price even further below the stock price, which won’t pay you as much of a put premium, unless you sell them further out in time. Generally, the further out in time you sell an option, the higher premium/payout you’ll receive.

Financials:  Not much to complain about with these financial figures, excepting Nucor’s lower operating margin, which is probably due to them using scrap metal as their feedstock:

Company Profiles:

Nucor:: Established in 1940, Nucor is the largest steel producer in the US, and is the largest recycler of scrap steel in the world. Nucor produces many steel products, such as structural steel, sheet steel, plate steel, cold finished steel, and wire mesh, and also acts as a raw materials broker in the steel industry. (Source: Nucor Corp. website)

VF Corp: At $9 billion in sales, VF is the world’s largest apparel company. VF owns many famous apparel and footwear brands, such as Lee, Nautica, Wrangler, Eagle Creek, and others. VF’s lifestyle businesses – Outdoor & Action Sports, Sportswear and Contemporary Brands – are targeted to be more than 60% of total revenues by 2015. VFC is aiming to add $5 billion in organic revenue growth and $5 in earnings per share over the next five years from 2010 levels. Strong growth in our highly profitable international and direct-to-consumer businesses is expected to fuel an expansion in operating margins to 15%. Over the next five years, VFC’s goal is to grow its international revenues by 15% annually to comprise 40% of total revenues. VFC also expects 15% growth in its direct-to-consumer businesses, which should account for about 22% of revenues by 2015. (Source: VFC website)

Disclosure:  Author has no positions in NUE and VFC as of yet, but has definitely worn Wrangler and Lee jeans sometime in the distant past…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.