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Stock Screen: Income Stocks with Worthwhile Total Return Potential - February 15, 2013
This screen focuses on stocks with good current dividend yields that have average or better prospects for relative price performance over the next three to five years. This combination resulted in a group of stocks with worthwhile total return potential, such as Golar LNG Ltd. (GLNG) and Intersil Corp. 'A' (ISIL).
In the first two steps of the selection process, we limited the field to equities ranked 3 (Average), or better, for Safety and Timeliness (i.e. relative price performance over the coming six to 12 months), two of Value Line’s proprietary metrics. Next, we pared our universe with respect to income generation. We selected issues with current dividend yields of at least 4.1%, and projected 2016-2018 dividend yields were pegged to be at least 2.6%. At that point, equities with three- to five-year projected price appreciation of less than 70% were cast aside. We then selected the remaining issues with a projected average annual total return to 2016-2018 (price gains plus dividends) of at least 17%, which is quite favorable in light of the fact that we may experience a period of lower economic growth with a reduction in available investment returns. Finally, to be included in our list (see below), a company had to have a Financial Strength rating of B or better.
Investors seeking above-average current income, along with worthwhile three- to five-year total return potential, might find the two equities our screen returned of interest. Nonetheless, we would encourage subscribers to consult each company's most recent review in Rating & Reports before making new commitments.
Golar LNG Ltd.
Golar LNG, through its subsidiaries, operates as a liquefied natural gas (LNG) shipping company. It engages in the acquisition, ownership, operation, and chartering of LNG carriers, and also develops liquefaction projects. As of April 2012, the company operated a fleet of nine LNG carriers and four floating storage regasification units.
We are upbeat about Golar’s prospects in both 2012 and 2013. Indeed, there has been a global shift away from higher-emissions coal and expensive crude oil toward natural gas as a source of energy generation. Nuclear power has also fallen out of favor, following the disaster with these facilities in Japan. That country is now constructing eight new LNG import terminals, and others have followed suit. Meanwhile, energy companies are eager to export LNG from sources like North America and Australia, which should provide employment opportunities for carriers such as Golar.
The stock’s dividend tends to vary, subject to cash flow and the board of directors’ discretion. For example, during 2007, when earnings were quite strong, Golar paid a dividend of $2.25 a share. But there was no distribution in 2009, given a challenging business environment. It is also worth mentioning that ''special dividends’’ have been paid, the last one of $0.85 occurring in the first quarter of 2013.
Intersil Corp. 'A'
Intersil Corp. 'A' designs and manufactures high performance analog semiconductors, and is a supplier of power management solutions for all computing platforms. It serves the communications, computing, industrial, and high-end consumer markets. The company’s customers include such well-established firms as Cisco (CSCO - Free Cisco Stock Report), Nokia (NOK), Dell (DELL), and Intel (INTC - Free Intel Stock Report).
We believe that Intersil registered a per-share deficit in 2012, quite a drop from the year before. That’s primarily because of difficult economic conditions, which squeezed the Industrial and Infrastructure operations, as well as the Personal Computer division. But the California-based company stands to return to profitability in 2013 if the business environment exhibits some improvement. Furthermore, management is committed to implementing aggressive cost-control measures. Successful new product introductions seem likely, due to adequate spending on research and development.
The stock offers a very high quarterly dividend, which is currently yielding 5.61%. But it seems that Intersil is content with keeping the payout at that level, which has not changed since 2008. Meanwhile, these shares’ price-recovery potential looks appealing, when compared to the Value Line median. Of course, that’s based on our expectation of a brighter earnings picture in the years ahead.
|Blackstone Group LP||BX|
|Golar LNG Ltd.||GLNG|
|People's United Fin'l||PBCT|
|First Niagara Finl Group||FNFG|
|Intersil Corp. 'A'||ISIL|
|KKR & Co. L.P.||KKR|
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.