3 Big Dividend Stocks That Could Doublehttp://www.fool.com/investing/dividends-income/2012/04/18/3-big-dividend-stocks-that-could-double-.aspx Jeremy Bowman
April 18, 2012
It's no secret that investors love dividends. The quarterly checks provide some instant gratification in the long-term investing game, and reinvesting them can be one of the best ways to make the most out of your money.
But dividend stocks often demand a sacrifice from investors. Companies that make those quarterly payments are generally slow-growers whose days of multibagger investment returns are over. If they believe the best use of their money is simply to return it to investors, they're probably content to grow just a little faster than the economy as a whole. These tend to be businesses with huge brands like Coca-Cola or Procter & Gamble, or industries like energy, telecom, or pharma that generate the cash flow for dividends without a need for massive investment in acquisitions or research and development.
Occasionally, though, an investor can find a high-yielding stock with upside potential in its share price, which usually happens when a dividend payer has been beaten down by the market. This creates not only an opportunity for the share price to soar, but also an ideal investing opportunity, because the dividend yield is unnaturally high. Let's take a look at three such stocks that present these opportunities.
SUPERVALU (NYSE: SVU )
The company's shares have taken a hit over the last year, due in part to a restructuring plan that meant sizable losses in the last two quarters. With that redirection now in the rearview mirror, SUPERVALU looks like a steal. Analysts estimate earnings of $1.27 for this fiscal year, which gives the company a forward P/E of less than 5. Add a 5.5% dividend yield into the mix, and the reasons to invest look compelling. While the income statement has taken a hit due to the restructuring, SUPERVALU's cash flow remains strong enough to support the dividend payouts.
Niska Gas Storage (NYSE: NKA )
But Niska is the largest independent natural-gas storer in North America, and it makes money off the volatility in the commodity price -- and by storing gas in the summer, when it's cheaper, and selling in the winter, when prices generally go up. This year's warm winter was among a host of problems that have knocked its share price down, and low prices and stability in gas prices have also hurt its business model. While natural-gas prices have continued to decline, Niska shares appear to have bottomed out, having traded near