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3 Sweet Spots for Income Investors: Kinder Morgan Inc (KMI), Oaktree Capital Group LLC (OAK)

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Income investors usually invest in those dividend stocks that have a mature business model and a strong balance sheet. My idea of finding a dividend stock is just an extension to it, where I also look for a solid growth opportunity in the stock price. Scouring the investing landscape, I have picked up three such stocks that maintain a higher dividend yield as compared to S&P 500’s dividend yield, and their future cash flows look strong. Additionally, their stock price growth in the last 12 months was more than or equal to the S&P 500’s growth of 11%. Let’s discuss them in detail

Name of Company Trailing Annual Dividend Yield Growth in stock price in last year(~)
Fidelity National Information Services (NYSE:FIS) 2.20% 19%
Oaktree Capital Group LLC (NYSE:OAK) 5.90% 15%
Kinder Morgan Inc (NYSE:KMI) 3.80% 11%

Source: Yahoo Finance

Kinder Morgan Inc (NYSE:KMI)Fidelity

For the fourth quarter of 2012, Fidelity’s total revenue was in-line with the market expectations. The company’s EPS for the quarter was just a cent short of the consensus estimate of $0.69. Additionally, it signed 30 new processing agreements in 2012, half of them in 4Q12. Of these contracts, around 40% were of more than $25 million annually. The cross sale initiative was in focus because of its increased growth in the company’s top 25 clients. The new deals included a major client, Webster Bank, which will expand the company’s consultancy services. This deal will also increase the company’s revenue from CapCo segment by 50% in the next three years.

For 2013, Fidelity expects to grow through tuck-in acquisitions. The guidance for capex in FY13 came around $330 million. The company is already making moves to expand its horizons. It recently announced the acquisition of mFoundry for ~$120 million. mFoundry is well known for its payment and banking solutions on mobile. Its clientele of around 850 different organizations includes big names like Bank of America, Starbucks, Zions Bank and many top financial institutions. The acquisition is in line with the company’s vision of investing in innovative products like PayNet, mobile banking, P2P payments where the competition is low and opportunities are higher.

Fidelity has ~80% recurring revenue and has increased the return to shareholders by 50% last year. I am optimistic about this dividend stock and its future ability to generate and distribute cash. I’ll recommend a Buy.

Oaktree Capital Group

Last quarter of 2012 saw a record distribution of close-ended funds leading to a good incentive income of $210 million, up from last quarter’s $59 million. In 2012 the fund distributed $2.94/unit to unit-holders. For 4Q12 the Fund had an adjusted net income of $1.36 beating the consensus estimate of $0.92. All-in-all the fund’s performance as a stock was better than expected. In the short-term, I see an upside in the revenue of Oaktree Capital Group LLC (NYSE:OAK) because of its Opportunities Fund VIIb, Oaktree’s largest fund. Oaktree announced that it will distribute half of the accrued investment (~$700 million) from VIIb to its unit-holders in 2013. The distribution of Opps VIIb fund results in incentive income of ~$195 million in 2013 for Oaktree.

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