Value investors can get some great ideas from a hedge fund as successful as Stephen Mandel’s Lone Pine Capital. From its inception in 1997 with only a mere $8 million, Lone Pine Capital has turned into a giant fund that now has $15.9 billion in assets under management. What is outstanding about this fund is its consistent lead by over 20% against the S&P 500 index since its humble beginnings.
I looked at the top dividend stocks of Lone Pine Capital and I came up with ones that, based on some fundamental measures, illustrate the ability to sustain stable dividend payments to investors. These stocks are growing quite impressively in terms of revenues, they are highly productive, and were able to grow their dividend payments at double-digit rates. All of these companies have been exceeding earnings expectations and have good payout ratios.
Sources: finviz.com, marketwatch.com, and whalewisdom.com; data retrieved March 30, 2013
Ralph Lauren Corp (NYSE:RL)
Ralph Lauren is quickly becoming a favorite for dividend income lovers. It has grown its annualized dividend payment at an average rate of 65% during the previous 4 years. The company’s payout ratio based on cash flow is only 8.39%. Moreover, it enjoys a double-digit net margin and has recently shown a positive 2.24% year-over-year growth in quarterly revenues. This has led RL to surpass consensus estimates in its earnings; in fact, it has been exceeding expectations during the last four quarters. The company attributes this renewed momentum to the strong demand in the Americas, an improved business in Europe, and the rapidly growing e-commerce segment. The sales forecast has actually been increased for the fiscal year starting in April.
The Gap Inc. (NYSE:GPS)
Gap is a consistent dividend income generator. It has grown its payment by an average rate of 17.6% in the last four years. The last quarterly revenue report shows an outstanding year-over-year growth of 10.32%. In fact, Gap has not failed to meet or even exceed earnings expectations in the last four quarters. Combine this with a relatively better profit margin, a payout ratio based on cash flow of only 10.32%, and a P/E ratio of 15.19, and you have a powerful source of safe and growing dividend income.
Take advantage of this momentum today. The earnings per share for the quarter ending in April have been revised upward five times already, compared to two downward revisions. Moreover, the forward P/E ratio is at 12.12. Despite the weak consumer confidence, Gap is hardly on the losing end because of its broad mix of pricing, which appeals to price-conscious consumers. The company is also lauded for its efficiency, shown by its prudent inventory management and relatively shorter cash conversion cycle compared to say, Abercrombie.