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UBS Dividend Ruler Stocks Combine Solid Yield and Growth Prospects
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Over the past five weeks, the 10-year Treasury bond yield has increased by over one-half of one percent from 1.66% to 2.17%. The overall equity market has rallied 3.8% during this stretch but as we expected, S&P 500 stocks with the highest absolute dividend yield have proven to be quite vulnerable to rising interest rates. However, the UBS dividend growth stocks have been far more resilient. The UBS A.G. (NYSE: UBS) analysts continue to believe that dividend growth stocks remain well positioned for income-seeking investors.
Faster earnings and dividend growth and much more attractive valuations are clear advantages, compared to the highest dividend yielding stocks. We wrote just last week on how short sellers could have cleaned up betting against the high dividend stocks. Here are the top UBS Dividend Ruler stocks based on their dividend compound annual growth rate (CAGR) to buy now.
Intel Corp. (NASDAQ: INTC) tops the UBS list on a metrics basis. The chip giant’s fortunes have faded somewhat with the mobile revolution. New products and a focus on the future have stopped the slide and could reignite growth. The UBS price target for the stock is $22.50 below current levels. The Thomson/First call estimate is also below current trading levels at $23.25. Investors are paid a solid 3.7% dividend.
CSX Corp. (NYSE: CSX) will be a large benefactor of a domestic economic recovery. Coal volumes are expected to stabilize as natural gas prices rise and power plants switch back to coal. The UBS price target is $27, while the consensus is also at $27. Investors are paid a 2.4% dividend.
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is a leading generic drug manufacturer. The company stands to benefit from the high number and dollar amount of branded drugs going off-patent in the next few years. UBS has set a $41 price target, and the consensus estimate is at $43.50. Shareholders receive a 2.8% dividend.
AFLAC Inc. (NYSE: AFL) claims to insure one out of four households in Japan, and it is one of the biggest insurers in the Japanese market. The company is expecting a repatriation profit of around $760 million in the 2013 and $1 billion in 2014 from Japan, based on launching new products and targeting its underpenetrated product segment. The UBS target for the stock is $63, while consensus is at $61. Investors are paid a 2.5% dividend.
AstraZeneca PLC (NYSE: AZN) has the growth component and a large dividend. New CEO Pascal Soriot’s strategy is to boost the pipeline of new drugs through improved R&D and acquisitions of biotech companies. Better marketing, improved penetration of emerging markets and a big cost-cutting program complete his turnaround plan. UBS has a $56 price objective, and the consensus target is lower at $48.15. Investors are paid a nice 5.5% dividend.
Occidental Petroleum Corp. (NYSE: OXY) is a favorite of oil and gas legend T. Boone Pickens. Pickens’s BP Capital reported a position of close to 80,000 shares in the $74 billion market cap oil major. At 12 times forward earnings estimates, Occidental trades at a small premium to some other large oil and gas companies. UBS has placed a $100 price target on the stock, while the consensus is at $103.67. Shareholders are paid a 2.8% dividend.
Medtronic Inc. (NYSE: MDT) should be able to maintain sales and earnings per share growth as they expand more into non-U.S. markets and bring new products online. UBS has a $57 price target, and the consensus is at $55. Shareholders are paid a 2.0% dividend.
British American Tobacco PLC‘s (NYSEMKT: BTI) share price has risen by an impressive 89% since 2008, and its dividend payout has increase by 61%, so shareholders have been well rewarded. UBS has a $127 price target, and the consensus number is at $115.75. Investors are paid a dividend of about 3.9%.
The UBS analysts continue to believe that dividend growth stocks remain well positioned for income-seeking investors. Faster earnings and dividend growth, and much more attractive valuations, are clear advantages compared to the highest dividend yielding stocks. As always, total return is the name of the game.
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