Below-the-Radar Dividends

 | Sep 14, 2012 | 4:00 PM EDT
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The other night, after we were done predicting how many touchdowns the Ravens would beat the Eagles by on Sunday (the consensus was four), the conversation turned to stock-picking and the markets. The main subject once again was dividend investing with a focus on dividend-growth stocks. The theory that buying stocks with a solid history of raising their dividend will beat the market is sound. As always, the price-value equation does matter, but for the most part, dividend growth is a solid approach for defensive investors. A solid history of dividend payments was one of Ben Graham's seven principles of defensive stock selection.

When the talk turns to dividend growth, I always hear the same names. Fund managers, talking heads and many of my associates talk about the big blue chip names, including drug companies such as Merck (MRK) and Johnson & Johnson (JNJ). The utilities are mentioned and, sooner or later, someone will bring up Wells Fargo (WFC) as the bank with the best potential for dividend growth in the years ahead. IBM (IBM) and McDonalds (MCD) are usually mentioned given their strong franchises and reliable history, or raising the dividend. All of these are solid conventional choices, but I find it useful to look deeper and kick over a few rocks looking for solid dividend growers.

If you grew up in the 1970s, as I did, you know Meredith Corp.'s (MDP) products. Chances are your coffee table had the latest copies of the Ladies Home Journal and Better Homes and Gardens. The company also publishes 80 special interest publications and has 30 websites devoted to women's interests, with a focus on moms. The company owns 12 network-affiliated television stations in major markets throughout the U.S.

At first glance, it is not the sexiest company, but Meredith is doing a lot of things right. It has expanded its line of titles to appeal to younger women, including American Baby, Parents and Fitness magazines. It has licensed the Better Homes and Gardens brand to the world's largest retailer, Wal-Mart (WMT), and recently extended the agreement to 2016. It just purchased the world's number-one recipe website,

The company is showing solid revenue and profit growth across all lines of business. Meredith has raised its dividend every year for the past 19 years and recently hiked it by 50%. Before this increase, the company has grown the dividend by 12% annually for the past decade. Again, it is not a sexy business but it is a well-run business with solid dividend growth history. At today's price, the shares yield 4.4% so it is a relatively high yielding issue as well.

Delek US (DK) is not a name that usually comes up in dividend growth discussions. It should be. The company has a downstream energy operation with refineries, pipelines, storage terminals and retail convenience stores. The operations stretch across the south from Texas to Tennessee and have been growing at a solid pace. Delek has been paying down debt and building its cash reserves over the past two years in addition to paying shareholders. Delek has more than tripled its payout since 2003 and recently declared a $0.18 per share special dividend to shareholders. It is not a stock you hear mentioned every day, but the company is well positioned for solid earnings and dividend growth over the next decade.

Investing in dividend-growth stocks can be a solid strategy for defensive investors. But as John Templeton pointed out, it is hard to beat the market by buying what everyone else buys. Digging deeper and looking for dividend growers off the radar screen will better serve most investors. Also, being patient and waiting for the market to pullback well off its highs will improve results for most of us. Build a list and wait for the mood of the market to turn in your favor.



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