Intel Corporation (NASDAQ:INTC) has increased its dividend at almost three times the rate of the S&P 500 average for the last five years. The company is expanding its dominant presence in computer chips into the chip market for mobile devices and is also beginning to successfully offer its excess manufacturing capacity to the chip designers who do not have their own manufacturing capabilities. As this expansion will require no real capital expenditure to implement, the extra sales will flow straight through to the bottom line and further enhance the cash stream of this stellar business, which is already gushing profits. With management showing a real willingness to reward shareholders with rapid dividend increases and share repurchases, investors can safely expect more of the same from the new revenue streams coming on board now.
The major criticism of Herbalife Ltd. (NYSE:HLF) is that it is a multi-level marketing business where only those at the top get rich. That is mostly true but is also exactly what profit minded investors want to hear: management that returns value to the owners. The nutritional supplement business overall has grown at an annualized rate of 7.1% over the last five years, but Herbalife has grown their sales at a 13.67% pace. You can debate the fairness of the compensation structure in multi-level marketing but you can’t argue with the effectiveness of the results. The opportunity to acquire the stock at this price was created by accusations made by a prominent short-sellers of the stock that the business was a Ponzi scheme, but those allegations seem to have quietly been pushed aside, having only created an excellent entry point into the stock.
Target is fighting tooth and nail with Wal-Mart Stores, Inc. (NYSE:WMT) in the discount retail arena and doing quite well in the struggle. It is growing sales and earning faster, it is growing its dividend faster and actually produces a better net margin on sales of 4% versus 3.7% for Wal-Mart. With forward 5-year earnings growth projected at 12.2%/year, this could be one of the best retail stocks available today.
Conclusions
Investors interested in establishing a well diversified portfolio of stocks with above average dividend yields and fundamentals superior to the overall market would be well served by considering investments in the businesses discussed here. These companies should all outperform the market for the next five years and all offer the potential to outperform by a wide margin.
Ken McGaha owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd..
