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Top 3 Dividend Stocks with Great Growth Potential

The S&P 500 has almost recovered its losses this year, and we are close to breaking into positive territory.  The Fed paused on raising interest rates, and reduced the number of rate hikes it expects to employ this year.  This is pretty good news for the market, as the lower rates should be around for at least a few more months.

At the same time, this news shows how the Fed is cautious of the volatile macroeconomy.  There are reasons to be optimistic, but just as many (if not more) reasons to remain cautious.  There are many questions which need to be answered with regards to Chinese growth concerns, oil production and supply, Eurozone stability, and so on. 

These questions are sure to pop back up and cause more volatility as we progress through the year.  Over the last few weeks, the market has been bullish.  If you expect the trend to continue, but still want some income to secure your returns if things don’t go your way, we’ve got just the right stocks for you now.

Below, we outline three Buy-ranked stocks with dividend yields north of 3%.  These companies also have considerable growth potential, with an attractive combination of profitability, sales growth, ROE, and other fundamental metrics.

Ormat Technologies, Inc-ORA

Ormat develops, manufactures, and markets innovative power systems.  The company provides alternative and renewable energy technology.  Ormat is a Zacks Rank #2 (Buy), and it currently offers a dividend yield of 5.62%.  The company also has a current ratio of 1.99, so it has plenty of liquidity to fall back on.  The company also has positive cash flow growth, and has sustained positive free cash flows over the last two years.

Ormat has very desirable growth metrics across the board.  The company’s debt-to-capital is just 44.18%.  It also has net margins of 20.11%, while the rest of the industry lags behind with negative net margins of -23.89%.  The industry’s ROE is -38.03%, while Ormat’s return on equity is 7.34%.  Ormat’ superiority across these metrics suggests that it is well ahead of the alternative energy industry.  Sales are projected to grow by 4.26% this year, while EPS is expected to grow by 14.97%.

Omega Healthcare Investors-OHI

Omega Healthcare is a self-administered REIT which invests in income-producing healthcare facilities.  The company currently holds a Zacks Rank #2 (Buy), and doles out a dividend yield of 6.78%.  The company has current cash flow growth of 31.66%, which should help the company to sustain its dividend payout to equity investors.  It’s also very liquid, with a current ratio of 2.71.

Omega’s capital structure is similar to its peers, with a debt/capital of 46.53%.  Compared to other REIT’s, OHI is in a different league with regards to profit margins.  The company’s net margin is 30.19%, while the industry’s net margin is just 13.68%.  Omega’s ROE is 6.41%, which is also considerably higher than the industry’s ROE of 5.21%.  Sales are projected to grow by 15.36% this year, which makes OHI an especially interesting growth candidate, since it has a combination of high sales growth along with large profit margins.  Omega’s EPS is projected to grow by 14.97% this year.

American Eagle Outfitters-AEO

American Eagle sells clothes, accessories, and shoes.  The company’s target consumers are men and women between the ages of 16-34.  American Eagle is a Zacks Rank #1 (Strong Buy), and it offers investors a 3.08% dividend yield.  Current cash flow growth is 37% for AEO, and the company is also pretty liquid with a current ratio of 1.56. 

The retailer’s net margin is 6.19%, which isn’t very high until you compare it with fellow retailing peers.  The industry’s net margin is just 4.17%, so AEO has the advantage with regards to profitability.  American Eagle’s trailing twelve month ROE is 18.66%, and sales are projected to grow by 3.03% this year.  AEO’s EPS is expected to grow at a much faster rate than the industry, as its EPS is projected to increase by 12.77% this year.  The rest of the industry’s EPS growth is just 5.74%.

Bottom Line

Keep your head up, but tread carefully and protect yourself from potential cracks in the market which can adversely affect your investments.  The sentiment has shifted for the better in recent weeks, but there’s a good chance that this optimism won’t carry through consistently for the rest of the year. 

This is especially true because there are so many questions in the market which haven’t been answered.  Hopping on the bull train comes with some risk, so be sure to hedge with income while eyeing for profitability in 2016.

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AMER EAGLE OUTF (AEO): Free Stock Analysis Report
 
OMEGA HLTHCARE (OHI): Free Stock Analysis Report
 
ORMAT TECH INC (ORA): Free Stock Analysis Report
 
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