Thursday, 10 March 2011 20:12

9 Dividend Paying Stocks with 1+% Yields, Increasing EPS and Attractive Valuations

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With savings account and bond interest rates continuing to be low, dividend paying stocks can be an attractive alternative. Most savings accounts are currently yielding under 1% so it is worth looking for dividend paying stocks that yield at least 1% while providing additional upside in the form of future EPS and DPS growth. It is important to look for strong balance sheets, reasonable valuations, and companies whose recent growth is likely to continue into the future.

We can start by using the Screener.co stock screener to find companies that are traded on US exchanges, growing, offering attractive and stable or growing dividend yields, and trading at reasonable valuations. We can also make sure their balance sheets are not burdened by debt. To do this, let's use the following criteria:

Field
op
Criteria
Exchange Country
=
"USA"
Exchange Traded On
!=
"Over The Counter"
Current year dividend per share estimate
>=
Current Dividend Yield-Common Stock Primary Issue, LFI-Annualized
Current long term growth of EPS rate
>=
0
Current year dividend per share estimate / Price-closing or last bid
>
0.01
Total Debt(I)
<=
EBITDA(A)
Current P/E Excluding Extraordinary Items-LTM
<
20
Current EV/EBITDA
<
6

As of 3/7/2011, this screen returned 14 results. If we ignore companies that are benefitting from the recent run up in commodity prices (broadly defined--inclusive of oil, precious metals, coffee, and other agricultural products), we are left with the following 9 companies:

Symbol
Company Name
MGA
Magna International Inc. (USA)
INTC
Intel Corporation
BBY
Best Buy Co., Inc.
ART
Artio Global Investors Inc.
WPO
The Washington Post Company
TLAB
Tellabs, Inc.
UFS
Domtar Corp. (USA)
LMT
Lockheed Martin Corporation
AZN
AstraZeneca plc (ADR)


Screener.co's fundamental data and screening tools helped us narrow the universe of companies from over 30,000 to 9. However, we are not done yet. One thing to note is how many of these companies are in highly cyclical markets. Magna International Inc. (MGA) is a Canadian design, engineering, and testing company that sells into automotive OEMs. Intel (INTC) is a semiconductor company. Best Buy (BBY) is a retailer. Among the remaining companies, Domtar Corp. (UFS) is a paper products manufacturer that has managed to grow margins despite seeing its revenue drop from $6.4B in 2008 to $5.9B in 2010. As the world increasingly goes digital, the paper market is likely to be further challenged.

Continuing to whittle down the list, we recognize that The Washington Post Company (WPO) owns Kaplan and derives a large chunk of revenue and earnings from its for-profit education division. Between the challenged newspaper industry, and the fallout of last year's damning DOE report on the for-profit education sector, it is not difficult to see why the company is trading at a valuation discount relative to its recent performance.

Lockheed Martin Corporation (LMT) is heavily reliant on military spending for its revenue and the country's need to address its unsustainable budget deficits may put pressure on the pentagon's budget in the future.

And then there were four. TellLabs, Inc. (TLAB) is a telecommunications networking equipment company that is trading near its 52-week low. That is likely driven by the lousy quarterly results they posted for the quarter ending December 31, 2010. Gross margins were down and net income was negative. However, they have a very strong balance sheet and a TTM EV/EBITDA ratio of 3.1x. A good discussion of the TellLabs opportunity can be found in a recent Seeking Alpha article.

Artio Global Investors, Inc. (ART) is an asset manager that was the subject of a more thorough, and generally positive, Seeking Alpha article on 3/8.

AstraZeneca plc (ADR) (AZN) is a pharmaceutical company that is yielding a whopping 7.6%. The company is trading at an EV/EBITDA ratio of 4.5x. Note that Screener.co has updated fundamentals data for AZN and thousands of other foreign companies while that information is difficult to find elsewhere on the web (Yahoo Finance shows the 2009 report as the most recent AZN income statement while Screener.co has the annual data for the year ended 12/31/2010). While there is a lot of uncertainty in the healthcare industry around reform and how payors will deal with increasing medical costs, AstraZeneca seems like an interesting income play.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

 

Last modified on Thursday, 10 March 2011 20:15
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