My Top Income Pick: No Dividends, No Problem

The getting’s been pretty good for income investors recently. While corporations may not be delivering revenue or earnings growth, they seem to be trying to make up for it by returning massive amounts of cash to shareholders.

According to FactSet, shareholder distributions for companies in the S&P 500 in Q4 were the fifth highest in the past decade, totaling $241 billion. And the $104 billion in fourth-quarter dividend payments was the second highest in the past 10 years, bringing 2015’s total to $415.4 billion.

The chart below shows the positive trends in dividends:

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However, dividend growth is slowing. FactSet also noted Q4 was the first time the year-over-year growth rate for trailing-12-month dividends per share fell below 10% in four years. If this trend continues — and it may, as 70% of companies that have issued EPS guidance for the upcoming quarter have issued negative guidance — income investors’ easy ride may soon be coming to an end.

With the market in a precarious spot as we wait for it to definitely break out one way or the other, stock selection is key. And the best stocks are not necessarily the ones with the highest dividends.

For instance, I recently recommended HCA Holdings (NYSE: HCA).

HCA operates 168 acute care hospitals with about 44,000 licensed beds, 116 freestanding surgery centers, 66 urgent care facilities and 55 freestanding emergency rooms. The company also operates about 830 physician clinics and employs 35,000 medical staff. 

These are all highly regulated operations, but management has been good at adapting to the changing regulatory environment. This should allow the company to grow revenue even if insurers and government programs reduce reimbursement rates, something that is a constant threat in the industry.

One way HCA grows revenue is by increasing its market share. Despite the company’s geographically diversified footprint, just 4% to 5% of all inpatient care delivered in the country today is provided by HCA facilities. So, the company has significant room for expansion in large markets where it already has facilities, like San Jose, Miami, Houston and Dallas. It also has plenty of opportunities for expansion into new markets.

While HCA has operations near London, only about 3.3% of 2015 revenue came from international operations, so it is still very much a U.S.-based operation. But Great Britain’s National Health Service is even more regulated than the U.S. market, so HCA’s ability to operate in that environment suggests the company could adapt and thrive in the United States under almost any conditions.

Recent data indicates HCA is growing in a number of areas: Same-facility admissions were up 1.6% in the past year, while same-facility emergency room visits increased 6.9%, and the number of outpatient surgical procedures grew by 4.4%. Most importantly, revenue was up 6% over that time.

During the past 12 months, HCA reported a 24.3% increase in earnings. Analysts expect the company to continue growing earnings in the long term, albeit at a slower pace. Current estimates show analysts are expecting growth to average 10.9% a year for the next five years. This is nearly double the pace of growth expected in health care spending, which is projected to average 5.8% a year.

About 55% of HCA’s revenue last year came from privately insured patients, who can access HCA facilities through many of the nation’s largest insurers. Government insurance programs, which account for the remaining 45% of HCA’s revenue, could account for significant growth in at least two ways.

These programs could result in increased admissions as the number of insured continues to grow. HCA estimates the markets include 3.9 million individuals eligible to enroll in Medicaid or other Affordable Care Act programs, but who have not enrolled yet. HCA could also increase its presence in states that have expanded Medicaid to meet increased demand. Just 15% of the company’s hospital beds are currently in these markets, leaving plenty of room for expansion or acquisitions to meet the demands of newly insured patients.

Given the strong growth prospects, HCA’s stock is undervalued. Shares are currently priced at about 0.7 times sales. The long-term average price-to-sales (P/S) ratio for companies in the health care facilities industry is 1.1, indicating HCA is potentially undervalued by more than 30%.

Bottom line: HCA is a stable, attractive long-term investment no matter how you look at it, and it’s a buy at current prices…

But the company doesn’t pay a dividend. Luckily, I have a solution.

Assuming you were to buy 100 shares of HCA, I recently showed traders how they could skim $30 in income from the market immediately — similar to collecting an extra dividend payment. 

Now, that may not sound like much, but this trade will only last 36 days. And we can repeat the process again and again to earn an annual yield of nearly 4% — on a stock that doesn’t pay any dividends.

Last year, I helped a group of traders earn $46,360 in extra income from stocks just like HCA — more than they ever could have from dividends alone.

You’re probably thinking they had to take on an excessive amount of risk to do this, but I assure you they didn’t. In fact, it’s one of the most conservative income strategies out there.

If you’d like to learn more about my strategy and how you can get started earning as much as $850 today, simply visit this link.