5 Dividend Stocks Growing Dividends Faster than the S&P 500 Index

Page 2 of 2

Target Corporation (NYSE:TGT), the second-largest discount retailer after Wal-Mart Stores, Inc. (NYSE:WMT), has increased dividends for the past 45 consecutive years. In 2012, Target raised its dividend by 20%, compared to the company’s annualized dividend growth of 20.5% over the past five years. Target is yielding 2.4% on a payout ratio of 32%. The company’s long-term EPS growth is forecast at a robust 12.4%, driven by the retailer’s expansion into Canada and strong organic growth in the U.S. The company’s same-store sales are forecasted to grow above the rate of growth of the U.S. economy, as the company expands its market shares and benefits from a greater focus on consumable products. The retailer’s low dividend payout ratio and robust EPS growth bode well for future dividend hikes. The company has a free cash flow yield of 5.3%. Trading at 12.7x its forward earnings, Target is priced at a discount to its respective industry. It also has below-industry price-to-book and price-to-cash flow ratios. Fund manager John A. Levin (Levin Capital Strategies) and billionaires Steven Cohen and Stanley Druckenmiller are bullish about this stock.

Stanley Black & Decker, Inc. (NYSE:SWK), a handheld and power tools company, has increased dividends for the past 45 consecutive years. In 2012, the company hiked its dividend by 19.5%. This compares with the average annualized dividend growth of 8.1% over the past five years. Currently, the company’s dividend is yielding 2.7% on a payout ratio of 59% of trailing earnings and 48% of free cash flow. The rebound in the housing market and aggressive costs cuts are expected to drive the company’s EPS growth, which is forecasted to average 14% per year for the next five years. The bottom-line growth will also be supported by the company’s plan to boost emerging market sales from the current 14% of total revenues to 20% by 2015 and 30% by 2020. Stanley Black & Decker has attractive valuation, with below-industry price-to-book and price-to-cash flow ratios. Its forward P/E of 12.6x is almost on par with its respective industry’s forward multiple. The stock is popular with Legg Mason Capital’s Bill Miller.

Page 2 of 2