One Of These Stocks Could Be The "MVP" Of Your Portfolio

Nathan Slaughter's picture

Friday, October 12, 2018 - 12:00am

by Nathan Slaughter

In baseball, some superstars make the team because of their ability to hit a fastball 400 feet. They share the same dugout with light hitters who are more valuable on defense because of their slick fielding ability and accurate throws across the diamond. And still others are on the roster because of blinding speed and the ability to steal bases and score runs.

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It's a rare player indeed who can hit for power, hit for average, run well, have a strong throwing arm, and catch every ball that comes near them. They call these physically gifted athletes "Five-Tool Players."

How to Find an "MVP" Stock Pick
In my Daily Paycheck premium newsletter, all of our recommendations are grouped into separate portfolios dedicated to meeting one of three objectives: high current yield, superior dividend growth, or income stability.

Sorting candidates into the proper portfolio is an obvious decision in most cases. Take, for instance, Crown Castle (NYSE: CCI), whose cell phone towers help form the backbone of wireless communication infrastructure. Over the past four years, the firm's quarterly distributions have tripled to $1.05 per share.

That's a compounded annual growth rate of 32% -- making CCI a no-brainer for my "Fast-Dividend Growers" section.

But sometimes, the decision isn't quite so easy. Every now and then, upon thorough inspection, a potential new addition qualifies for all three portfolio sections. I love it when that happens, because it means the stock exhibits multiple attractive traits.

The only question is where it fits best.

In much the same way as finding a "five-tool" player in baseball can change the whole dynamic of a team, sometimes there are special stocks that can help your portfolio in more ways than one. For me, these MVP candidates are dishing out yields more than 50% above the S&P average, with payouts that have climbed at least 10% over the past year. And with payout ratios below 70%, their distributions are well-covered and reliable.

I recently did a scan for stocks like this, and here's the select group of contenders.

Screens are a quick way to identify a workable group of stocks that might be solid candidates based on certain criteria. But these stocks haven't been fully evaluated yet, so it's best to follow up with your own research.

That being said, this combination of search parameters tells us quite a bit. These are shareholder-friendly companies generating ample cash to support above-average yields. And since management typically doesn't hike payouts if the earnings outlook is iffy (let alone by double-digits), the increased distributions likely reflect a bullish growth forecast.

Finally, most of these companies are also paying out less than half their profits. That conservative, sustainable level provides a margin of safety for dividends to be maintained even in a business downturn.

Picking Favorites
You can make an argument for any of the four names on this list. But right now, I'm most intrigued by Carnival (NYSE: CCL). While ocean-going voyages aren't for everyone, cruising continues to be an increasingly popular option for travelers of all ages.

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Carnival just posted the strongest quarter in company history, carrying 3.5 million passengers -- boosting occupancy rates to 112.6% (levels above 100% indicate more than the standard two guests per cabin). And once onboard, those passengers tend to spend freely on drinks, gambling, shore excursions, and other perks, adding $1.3 billion in quarterly revenues on top of ticket sales.

Revenues per available lower berth day (ALBD), a key metric measuring how much the company's squeezes per cabin per day, continue to climb. As a result, management is anticipating earnings to rise 11% to $4.25 per share this year.

By spreading fixed expenses over a growing fleet, Carnival is becoming more efficient, boosting returns on invested capital (RoIC) to double-digit territory. And most of the cash is going right back to shareholders. Annual dividend expenditures now total $1.4 billion, along with $750 million in stock buybacks last quarter alone.

With a dividend that is large, growing, and stable, CCL may be a good pick for those of you looking for a multi-dimensional holding for an income-oriented portfolio. But if you're looking to earn more income and be able to sleep at night, then you're going to need more than one pick to do it. That's why my research staff and I over at The Daily Paycheck are here to help. If you're looking for more picks, more income, and more gains, then I invite you to check us out at this link.

Nathan Slaughter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.