Philip Morris International Inc. (PM), KKR & Co. L.P. (KKR): Top Three Dividend Growers

I like firms that have a history of rewarding shareholders through cash dividend payments in addition to having an attractive price appreciation potential. Given the S&P 500’s 2.1% average dividend yield, I focused on companies that offer yields above 3%. Besides this, the three companies below offer the following characteristics:

• Positive free cash flow (FCF) per share
• Positive one-year sales growth
• Sales coverage ratio of at least 100%
• Positive operating income
• Positive one- and three-year dividend growth rates

A king in the tobacco business

Even when the owner of the Malboro brand outside the US expects European Union volumes to decline around 6% year-over-year (yoy) in 2013, pricing has remained stronger than usual (+10% in the first quarter) and the company’s prospects for Asia (ex-Philippines) remain good. Philip Morris International Inc. (NYSE:PM) reported market share gains in Indonesia, Turkey and Ukraine and stable share in Russia.

Even when Philip Morris International Inc. (NYSE:PM) trades at premium to tobacco peers, the company has best-in-class fundamentals: attractive growth prospects in Asia, price-leadership in the majority of the markets where it competes and superior returns on invested capital (60%). Philip Morris International Inc. (NYSE:PM) trades at a 16.5 P/E and a price to operating cash flow ratio of 15.

The toy business is not a kid’s game

The owner of the Barbie brand has an unparalleled distribution network and is growing fast in emerging markets (Brazil just became the company’s largest market after the US) while ameliorating margins across the board thanks to its cost-cutting initiatives (Mattel, Inc. (NASDAQ:MAT) has been saving +$180 million yoy through its cost savings initiatives).

Good management can be seen at the company’s results. Earnings per share (EPS) have grown by 83% yoy while the company’s top-line grows at a 7% yoy rate.

Trading at 15 times 2013 earnings and with a 182% dividend coverage ratio, Mattel, Inc. (NASDAQ:MAT) is a company you should keep on your watchlist as disposable income grows in emerging markets and as US consumers recover from the Great Recession.