This week, I’m going to spotlight the year’s best-performing Top Picks.

Every year, we ask all of our Digest contributors to send us a recommendation of their single favorite stock to own in the coming year. Their submissions range from unknown small-caps to the past year’s winners, a broad range that reflects the wide variety of investing styles practiced by our contributors.

Once in July and again at the end of the year, we revisit the Top Picks to see what’s working.

As of this writing (just shy of the end of the year), the best-performing Top Pick, with a gain of 53%, is a small-cap technology company called Allot Communications (ALLT). Ian Wyatt, editor of Small Cap Investor PRO, recommended Allot, which made its gains in the first six months of 2011. So it was already a winner at mid-year, when Wyatt wrote in an update:

“I’m pleased with the continued growth of Allot Communications, which reported on Tuesday and beat earnings estimates by delivering EPS of $0.07. The company grew revenues by 38% over the comparable quarter of 2010, and by 6% sequentially. To bring more recent subscribers up to speed, Allot manages broadband networks to maximize their performance. Its customers are wireless cell phone operators around the world, and its competition includes companies like Blue Coat (BCSI) and Cisco Systems (CSCO). The company is growing because its solutions help service providers manage their networks more efficiently–its products solve the pains that come with an overloaded network. With massive growth in mobile technologies, I don’t see this trend ending anytime soon and believe Allot will continue to enjoy growing demand for its solutions. … There are now five analysts following Allot, and on average they believe the company will earn $0.26 in 2011 and $0.38 in 2012 on revenues of $71 million and $83 million, respectively. These projections would put revenue growth at 25% this year and 16% next. I think Allot will do better. I’ll bump up the price target on Allot to the consensus of $17.50–that’s around 15% higher than shares currently trade. Allot is a buy on weakness.”

Since then, Allot broke through the 17.50 level a few times, and even touched 19.15. Shares always meet resistance at those high levels though, and they are now back between 16 and 17. But as Wyatt wrote, this company is gaining admirers, and a strong move past 19 could signal the next phase of the upmove for ALLT. This is certainly one to keep an eye on.

The second-best performer to date is also a small-cap technology stock. This one doesn’t have any potential for new investors though: Global Defense Technology and Systems (GTEC) was acquired for $315 million in March 2011. The acquisition provided a quick 48% gain for subscribers who had bought the shares when Geoffrey Eiten, editor of OTC Growth Stock Watch, recommended them in our January Top Picks issue.

The third-best performing Top Pick is also a technology stock. But unlike ALLT and GTEC, IAC/Interactive Corp. (IACI) made fairly steady gains all year, even as the market thrashed up and down. Originally recommended in the Top Picks issue by David Fried, editor of The Buyback Letter, at 29.41, IACI is now trading in the low 40s. IAC/Interactive owns Ask.com and Match.com, in addition to other Internet properties. It’s hard to tell if the stock’s best days are behind or ahead of it–IACI’s momentum is choppy but upward, as evidenced by a pattern of higher highs and higher lows. Watch to see what IACI does when the market breaks out of its trading range in 2012 (hopefully to the upside).

The fourth-best performer overall was featured in Dividend Digest. Chunghwa Telecom Co. (CHT), recommended by Yiannis G. Mostrous in Global Investment Strategist, is up 35% year-to-date. Mostrous just updated his subscribers on Chunghwa Telecom last week, December 21, writing:

“Taiwan’s largest telecommunications provider Chunghwa Telecom in mid-December announced that its mobile communications division had crossed the 10-million subscriber mark. Chunghwa Telecom also announced that it would spend TWD6 billion (USD200 million) to boost its mobile network capacity–the first step on a path to cultivate a smartphone and ‘Internet of Things’ subscriber base of 10 million. Internet of Things refers to network-enabled objects, such as a refrigerator, and the web-based services that interact with these devices. In 2011, Chunghwa Telecom spent TWD4.8 billion (USD160 million) on expanding and improving its mobile network. The company also said it would contribute USD51 million to a consortium of Asian telecom companies to build high-speed submarine cables that will connect 11 areas in nine countries in the region. The Asia Pacific Gateway project will build an underwater fiber-optic network that will begin commercial service by 2014. The cables will stretch 100,000 kilometers and will link Taiwan, China, South Korea, Japan, Singapore, Malaysia, Thailand, Vietnam and Hong Kong. Chunghwa Telecom said that its November unconsolidated sales fell 1.34% year over year to TWD15.7 billion (USD519.9 million), without providing a reason for the decline. The company’s total revenue in the third quarter rose 9.5% year over year to USD1.9 billion, although net income declined 0.2% year over year to USD406.8 million. However, net income per American depositary receipt (ADR) rose 5% year over year to USD0.51, primarily due to a 20% reduction in outstanding shares. Chunghwa Telecom’s operating profit declined 3.9% year over year to USD473.3 million.

“The company’s mobile business accounted for USD810.2 million of total third-quarter revenue, an increase of 6.6% from the year-ago period. The company’s mobile subscriber base rose 4 percent year over year in the third quarter to 9.96 million, of which 5.83 million subscribers were third-generation (3G) technology users. These 3G users contributed to 40.5 percent yearly growth in mobile value-added services revenue, which came in at USD133.7 million in the quarter. The company expects its mobile Internet subscriber base to reach 1.47 million by the end of 2011 compared to 1.32 million at the end of the third quarter. The company’s Internet segment accounted for USD219.6 million in sales, up 0.6 percent year over year. The company is rapidly expanding its fiber network throughout Taiwan, with the aim of reaching 75% of the country’s population by the end of the year. The company’s broadband subscriber base was 4.48 million at the end of the third quarter. Of this total, 51.8% of broadband users had signed up for the company’s fiber network offerings. The company’s rapid expansion of fiber coverage allowed it to achieve 1 million movie-on-demand subscribers in November, one month earlier than predicted.

“Chunghwa Telecom controls 80% of Taiwan’s broadband market. The company is utterly dominant in the fixed-line market, holding a 96% share of the local fixed-line segment and 77% of the long-distance fixed-line market. The company’s domestic fixed-line segment grew revenue by 17.1% year over year to USD699.7 million in the third quarter, while the international fixed-line communications segment saw revenue decline by 6% to USD128.9 million. However, a recent government ruling has shifted the pricing right for landline-to-mobile phone calls in favor of fixed-line operators, which has boosted Chunghwa Telecom’s top line. Buy Chunghwa Telecom up to USD35.”

In addition to its appreciation potential, Chunghwa Telecom also offers large but intermittent dividends. Going forward, this company looks like a good pick for any investor.

In the eight months since these stocks were recommended, the Dow Jones Industrial Average has gained no value–as I write this it is down just over 1% since April 12.

These four dividend aristocrats, on the other hand, have not only gained value, they have also all made dividend payments since then.

The first, The McGraw Hill Companies (MHP), has paid three dividends of 25 cents each. If you’d bought at 39 on April 12, you’d have received 75 cents, for a yield of about 2% over the past eight months. Plus, the stock’s price has increased 10%, from 39 to 43.

Back in April, Patrick McKeough, editor of the Wall Street Stock Forecaster, recommended MHP. McKeough still rates the stock a buy.

McGraw-Hill is planning to break up into two companies next year: the company’s Standard & Poor’s division and other financial-information providers will become McGraw-Hill Markets, while the textbook-publishing side will become McGraw-Hill Education. McKeough sees the split in a positive light, writing in October: “Break-ups like this tend to work out well for investors, because the total value of the two new companies usually exceeds the value of the former parent over time.”

This year marked the 38th consecutive one in which MHP raised its quarterly dividend.

The second Dividend Aristocrat from April’s issue is The Chubb Corp. (CB), an insurer. The Chubb Corp. has paid two dividends of 39 cents since April, as well as gaining 10% in price. It is now trading at 68, above the target price of $65 that John Eade, an analyst for the Argus Weekly Staff Report, gave it back in February. In October, Eade raised his target to $75, and reiterated his BUY rating on The Chubb Corp.

The third outperformer since April is Abbott Laboratories (ABT), always a favorite among income investors. Since April 12, ABT has paid three dividends of 48 cents each and increased in price from 50 to 54, approximately 7%. Abbot was recommended by Ingrid Hendershot, editor of Hendershot Investments, as a Dividend Digest Top Pick for 2011, so we’ll have an update on the stock in our Top Picks for 2012 issue, coming out January 11. (If you’re not a Digest subscriber, but are thinking about becoming one, I encourage you to take action before January so you can receive this collection of the experts’ single best investment ideas for next year.)

Finally, the fourth April Dividend Aristocrat to beat the market is Johnson & Johnson (JNJ).  Mark Deschaine, editor of Deschaine & Company’s Viewpoint, who recommends dividend-paying blue chips for the long-term investor, recommended JNJ.

As he pointed out in his recommendation: “JNJ has been paying a dividend since 1944 and has increased it annually for over 47 years. … For every share you might have bought in 1979 at $0.85, you would now be receiving $2.16 in annual dividends, or more than 2.5 times your initial investment–each and every year–and growing to boot! Going forward, you can be sure we do not anticipate this kind of supercharged income growth. However, our analysis indicates that Johnson & Johnson should be able to continue to generate positive cash flow from its stable of products and continue to pay and increase its dividends for years to come. As long as that’s the case, and the price of the stock remains reasonable by our valuation measures; we’ll continue utilizing the dividend and dividend growth attributes of JNJ to provide growing income to our clients.”

That’s as true today as when he wrote it–that’s the beauty of owning dividend aristocrats. Since April, JNJ has gained approximately 7% in price, and paid out $1.71 in dividends, for an eight-month yield (based on April 12th’s closing price of 60) of about 3%.

There’s certainly something to be said for buying and holding this type of steady, dividend-paying stock. It certainly would have worked better than most strategies this year. If you think this approach might be for you, you might want to consider subscribing to the Dick Davis Dividend Digest, where all these stocks were recommended first. Click here to learn more!

I’ve been discussing the overall market a lot lately (if you didn’t catch last week’s market video, you can watch it here) so today I think we’ll ignore it–and focus on stocks that ignore it too (more or less). Below are three recommendations from the latest Dick Davis Dividend Digest. Each one of these three stocks is a conservative dividend payer with relatively low correlation to larger market moves. Sounds pretty good right about now, doesn’t it?

The first is Macquarie Infrastructure Company (MIC), which yields about 3%. MIC is one of the few stocks that has managed to stay above its 50-day moving average lately, and the strength has not gone unnoticed: it was recommended by two analysts in the latest Dividend Digest. The first was George Southerland, editor of Special Investment Situations, who wrote on October 25:

“Macquarie Infrastructure Co. owns and operates a handful of infrastructure assets consisting of relatively basic services where cash flows are predictable. The flagship asset is a 50% equity interest in NJ-based International-Matex Tank Terminals, or IMTT, that operates a bulk liquid storage terminal business that stores petroleum products and an array of chemicals. Capacity is over 43 million barrels, and the business isn’t particularly sensitive to the economy since storage contracts last from three to five years. IMTT enjoys a distinct competitive advantage as one of its main facilities (Bayonne) is located near New York harbor and can load and unload ships quickly due to the depth of the water in front of its docks. … A kicker here involves the dividend, currently at $0.20 per quarter for a 3.2% yield. Management is working with its partner in the IMTT investment to distribute excess capital that the business is generating. We anticipate an increased distribution probably beginning in Q1 2012, and could see the dividend nearly double within a year. Note also that a rising payout should prompt capital appreciation from the shares. MIC is a buy up to 26 and becomes particularly interesting on dips below 24.”

The second Macquarie recommendation came from Jennifer Dowty, a managing director and portfolio manager at Manulife Asset Management who writes for Investor’s Digest of Canada. On November 18, she wrote:

“On November 2, the company reported strong operational third-quarter results, with revenue climbing nearly 18% year-over-year. Five analysts rate Macquarie a ‘buy.’ Their average one-year price target is US$29.50 a share. A key catalyst for the company is speculation that management could substantially boost the dividend in early 2012. … The company has been unable to resolve a dispute regarding distributions with the co-owner of International-Matex Tank Terminals. A hearing on the issue is set for January 9 and the company anticipates the process will be completed by the end of March. But if the outcome favors Macquarie and the economy is good, the company is likely to raise the dividend by roughly $0.70 a share.”

Our next stock is very small–its market cap is only $78 million–but it is actually hitting new 52-week highs right now. White River Capital (RVR) pays a 4.5% dividend. On October 14, Eric Dany, editor of Stock Prospector, wrote:

“There’s more upside ahead for this sub-prime auto finance company because they are buying back shares and growing their financing portfolio. … The share repurchase program could remove 6.9% of the outstanding shares, which would boost book value to about $25.00. The sub-prime auto finance company operates Coastal Credit in 24 states. They acquire the subprime notes through franchised and independent auto dealers and then service the notes. … My earnings estimates are $2.25 in 2011 and $2.50 in 2012. With a P/E ratio of 10x my 12-18 month target price is $25.00 a share. … Strong Buy.”

RVR looks a little over-extended here though, so wait for a pullback before buying in.

Finally, a perennial Dividend Digest favorite, with a 7.6% yield, recommended by Roger S. Conrad and Elliott H. Gue in MLP Profits on October 28:

“Linn Energy (LINE) has hedged all of its oil output through 2013 and all of its natural-gas production through 2015. The firm has boosted its average daily hydrocarbon output by more than 30% over the past 12 months, leading to a 30% surge in third-quarter cash flow. These solid operating results enabled Linn Energy to cover its quarterly distribution by a margin of 1.1 to 1. Management expects to cover its full-year distribution 1.18 times. Management also continued to opportunistically lock in favorable pricing with new hedges. The firm also repurchased 530,000 units at an average price of just $32.76, some 15% below the current price. CEO Mark Ellis projects that Linn Energy’s capital investments will continue to deliver quarter-over-quarter production growth of at least 6%. … Few energy producers are lower-risk plays than Linn Energy LLC; the stock rates a buy up to 40.”

LINE can be volatile at times, but the 7%-plus yield is such a draw that most sell-offs are quickly corrected. The current weakness (such as it is) will probably prove to be another such buying opportunity. LINE looks like a good buy right here for the large dividend.

Until next time, hang in there.

P.S. Learn more about Macquarie Infrastructure Company (MIC), White River Capital (RVR) and Linn Energy (LINE), as well as other top high-yielding dividend-payers featured in Dick Davis Dividend Digest.

Economically, of course, their argument makes sense. But due to a variety of real-world factors–existing infrastructure for using the two fuels, and the relative growth in the supplies of oil and gas, for example–parity has still not come to pass. In fact, thanks to the rapidly growing number of productive natural gas wells in the U.S., natural gas prices have fallen more than 20% since the beginning of 2011.

Now, that doesn’t invalidate the economic argument for oil and gas price parity. And in the eyes of parity believers, the slide in natural gas prices has only made investments in the sector better deals. The United States Natural Gas Fund (UNG), for example, is down 33% from the beginning of the year. If you think natural gas prices have to go up eventually, it looks like a pretty good bargain right here.

Of course, you may have to wait quite some time for your prediction to come true, as investors who bought into the fund a year or more ago have already discovered.

Our most recent Dividend Digest spotlight stock was also a natural gas play for patient investors. Encana Corp. (ECA), a Canadian company that is listed on the New York Stock Exchange as well as in Toronto, is one of the leading producers of natural gas. In fact, its production lags behind only ExxonMobil’s (XOM). While the stock’s chart is both lousy and boring, ECA was recommended by two of our most well respected contributors at the same time, earning it Spotlight Stock credibility. The first, Nathan Slaughter, editor of StreetAuthority’s Scarcity & Real Wealth, wrote in his October 31 letter:

“Just about every energy producer sells both oil and gas. They each favor one over the other. And most have been tilting toward oil over the past couple years. But Encana Corp. makes no bones about being a natural gas specialist and is an outspoken industry advocate. Natural gas accounts for fully 96% of the company’s production mix (versus 4% for oil). … That skewed weighting puts Encana at a disadvantage in the current pricing environment. But if you’re looking for a well-managed pure play that is perhaps the most leveraged to rising natural gas, this is it.

“The Canadian company has secured 11.7 million acres to explore and develop. Much of that land lies north of the border in the Bighorn, Cutbank Ridge and Horn River gas basins in Alberta and British Columbia. But the firm also has a major presence in some of the top U.S. plays, most notably the Haynesville Shale in Louisiana and East Texas. Encana has acquired nearly 430,000 acres in the Haynesville Shale, which overtook North Texas’s Barnett Shale last year as the nation’s top producer with production rates now topping 5.5 billion cubic feet (Bcf) per day. The company was an early mover in the play, in keeping with its strategy of quietly beating other rivals to the punch and scooping up land before hype drives up lease costs and royalty rates. Encana’s latest target is Michigan’s Collingwood Shale, which underlies the Utica Shale in spots. The company has recently amassed 250,000 acres in this region for just $150 per acre, mere pennies. The value of this shrewd move is just now becoming obvious. According to Morningstar, recent Collingwood auctions have been closing as high as $5,500 per acre. With dominant positions in low-cost supply basins throughout North America, Encana has built up a massive base of 14.3 trillion cubic feet (Tcf) in proved gas reserves–23 Tcf if you include reserves characterized as probable. … The company can easily accelerate production growth if it wants to. But there’s no sense in rushing to get gas out of the ground today for less than $4 per Mcf [million cubic feet]–not when you can wait and sell it tomorrow for $6 per Mcf or more. So management is targeting slow but steady 5% to 7% annual growth for the time being.

“In the meantime, profits aren’t exactly suffering. Last quarter, the company generated $1.2 billion ($1.57 per share) in cash flow, amply covering the $0.20 per share dividend. And that’s with rock-bottom prices. Imagine the bottom line potential when those 3.5 Bcf per day are being sold at more favorable prices. For now, Encana isn’t stuck just taking what the market will give. Management has locked up more than half of its 2012 production (2.0 Bcf/day) at an average NYMEX (New York Mercantile Exchange) price of $5.80 per Mcf. That’s a hefty 48% premium to the going rate.

“Looking ahead, Encana also has several additional catalysts on the horizon. First, the company just pocketed $800 million with the sale of a gas plant and other midstream assets, money that will be deployed into more profitable upstream projects. On that front, management is plowing $1 billion into liquids-rich plays from Mississippi to Colorado–and daily production of higher-priced oil and NGLs [natural gas liquids] is expected to double from 25,000 barrels to 55,000 barrels over the next three years. Elsewhere, Encana has a 30% ownership stake in the Kitimat LNG facility, which recently received an export permit from Canada’s National Energy Board. This is one of just a small handful of LNG export hubs in North America, and the facility will be equipped to ship 1.4 Bcf of gas per day to Pacific Rim customers. Finally, Encana is also an emerging leader in natural gas transportation fuels. … If natural gas prices turn higher, Encana will be among the biggest winners. The company has a high-quality asset base and a 50-year inventory of low-cost drilling sites to juice future production and earnings. As an added bonus, the shares offer a nice 3.6% dividend yield, roughly double their peer group average.”

The other recommendation came courtesy of Patrick McKeough, editor of The Successful Investor, who recommended the Canadian shares. In his November issue, he wrote:

“Encana is down 29% since the start of 2011. The company is partly a victim of its own success. … New technologies that Encana helped develop have cut the cost of extracting shale gas, which has let other companies expand their own shale gas production. This has greatly added to the supply of natural gas, and pushed down gas prices. However, like most commodities, gas prices are inherently volatile. In particular, one cold winter could quickly push up prices.

“Longer-term, the outlook for gas remains bright. A growing gap between gas and oil prices could prompt more transportation companies to convert more of their trucks and trains to run on natural gas. Moreover, plans to ship liquefied natural gas from British Columbia to Asia should spur demand. Encana’s shares trade at a high 49.1 times the $0.42 U.S. a share the company will probably earn in 2011. However, they trade at a more reasonable 3.9 times its projected cash flow of $5.34 U.S. a share. … Encana is a buy.”

For patient investors who believe in the inevitability of gas and oil price parity, Encana is the place to be. If you want to make a quick buck though, stay away from this one.

Less-patient investors don’t have to be left out in the cold, either. There are a few natural gas plays for which depressed prices are actually a boon.

One of these is Cheniere Energy Partners LP (CQP), a master limited partnership (MLP) with a whopping 10% yield. Cheniere owns most of a liquid natural gas (LNG) terminal in Louisiana called Sabine Pass. The terminal is currently used to unload LNG from ships and turn it back into a gas, after which it can be transported to end markets by pipeline. However, Cheniere is in the process of converting Sabine Pass into a two-way terminal, so it can export natural gas as well: liquefying it and loading it on to ships bound for foreign ports. So while Cheiere’s current business already leaves it with minimal exposure to low natural gas prices, the expansion will actually make Cheniere a prime beneficiary of low prices, which incentivize U.S. producers to export their cheap gas to places where it isn’t so cheap.

Cheniere was recommended in the latest Dividend Digest by Gregory Spear, editor of The Spear Report. In his October 28 issue, he focused on Cheniere’s plans to begin exporting LNG:

“This past Wednesday, Sabine Pass Liquefaction, a subsidiary of Cheniere Energy Partners, signed an $8 billion deal with BG Group, a large integrated natural gas conglomerate headquartered in the U.K. The 20-year agreement commits BG Group to purchase 3.5 million tons per annum (mtpa) of liquefied natural gas from CQP’s Sabine Pass terminal facility in Louisiana. Cheniere will super-cool the gas and BG will ship it to Asia and Europe. This one deal is expected to reap more than $8 billion for CQP over the life of the contract ($400-$500 million/year).

“Sabine Pass is an 850-acre LNG transportation facility with a 40-foot ship [deep] canal and five tanks capable of storing nearly 17 billion c/f of natural gas. The facility is 90% owned by Cheniere. Construction of the liquefaction facilities, which will cost about $6 billion, is expected to commence next year and actual exports are slated to begin in 2015.

“Due to new advances in horizontal drilling, natural gas is now extremely abundant in the U.S. Based on current demand, we have nearly 100 years’ worth of the clean fuel, which is why prices remain depressed (about $4 per million BTU). Meanwhile, natural gas prices in Asia have doubled over the past six months and sit north of $15 per million BTU. The economics make the development of LNG terminals in the U.S. a no-brainer. We therefore expect Cheniere to undertake more deals with other global players and at significantly higher prices. … Shares of the non-dividend paying arm of Cheniere (LNG) soared more than 60% on the BG news, but CQP has remained under its 200-day moving average. Meanwhile, the stock pays a hefty dividend, so investors get paid handsomely to wait.”

Of course, you may have noticed that Cheniere won’t be able to begin exporting LNG until 2015. If the parity believers are right, natural gas prices will already have risen significantly by then.

Today’s bottom line, then, would seem to be that investing based on expected long-term trends in commodity prices is no easy feat. Luckily, both of these companies will pay you a nice dividend while you wait to see what actually happens.

For more details on ECA and CQP, as well as other top stocks featured in Dick Davis Dividend Digest, click here.