A dividend stock investor would naturally assume that with the stock market so strong during the past three months that it would be difficult to find solid paying dividend stocks at reasonable prices. However, in perusing through the list of our top ranked dividend stocks, several candidates emerge as good value even as the Dow Jones Industrial Average is hitting all-time price highs. The fact is that there are still a bountiful amount of dividend gems to be ferreted out by smart investors.
The comments above and below are excerpts from an article by Timothy J. McIntosh (thedividendmanager.com) which may have been enhanced – edited ([ ]) and abridged (…) – by munKNEE.com (Your Key to Making Money!) to provide you with a faster & easier read.
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I ran our Top 100 Dividend Stock list through Yahoo Finance and looked for those stocks that were down 10% in the past three months with dividend yields over 2%. The stock list primarily comes from the utility, healthcare, and consumer staples sectors. Each company’s stock price has suffered as more economically sensitive sectors have taken off including financial, industrial, and energy stocks.
Here is an examination of the 6 outstanding dividend stocks that should be on your radar screen at discounted prices:
|Company||3 Month Performance|
|American Electric Power Co (AEP)||-10.7|
|CVS Health Corp (CVS)||-24.9|
|GlaxoSmithKline PLC ADR (GSK)||-13.2|
|Public Storage (PSA)||-15.1|
1. A Diverse Utility Company & High Yield; American Electric Power (AEP)
American Electric Power is one of the largest regulated utilities in the United States, providing services to over 5 million retail customers across 11 states. Because it operates across such a wide variety of regions, its revenue and dividend payouts are more protected than many other large utility companies.
The firm released results on November 1st [as follows]:
- The utility firm reported Q3 2016 earnings of $1.30 per share, comfortably beating the average analyst estimate of $1.21 per share.
- American Electric Power also revised its 2016 earnings guidance. The firm now expects earnings for the next year to be in a range of $3.75–$3.85, compared to earlier estimates of $3.60– $3.80 per share.
- The company also did well on the top line as revenues came in at $4.7 billion versus $4.61 billion that analysts expected.
- American Electric Power’s (AEP) dividend was increased by a healthy 5% this year, one of the higher increases within the utility sector in 2016.
- The firm also maintains a 3 year dividend growth rate of 5.2% and has paid out dividends consecutively for the past 45 years.
- The stock also maintains a very low beta at 0.65, offering dividend investors low volatility.
- A cash dividend payment of $0.59 per share is scheduled to be paid on December 09, 2016 to shareholders. This is up from the prior year rate of $0.56 per share.
- The overall yield is 3.83%, in line with other utility companies, but well above that of the S&P 500.
2. Great Pipeline & Cheap Valuation; Amgen (AMGN)
Amgen is a leader in biotechnology with premier products such as Epogen and Aranesp, Embrel, and Neupogen. Amgen’s acquisition of Onyx bolsters the firm’s therapeutic oncology portfolio with Nexavar and Kyprolis. Amgen’s pipeline hadn’t been productive since the launch of Prolia/Xgeva, but several launches in 2015 as well as innovative earlier-stage programs have made the biotechnology firm a more diversified and productive research company. Amgen’s newest drugs and its burgeoning pipeline will be key to generating solid future revenue growth. This includes several new drugs in the stable such as Xgeva, Prolia, Krprolis (from Onyx merger), and migraine drug Erenumab. Last week Amgen reported strong phase 3 results for Erenumab in patients with episodic migraines and will most likely be first to market.
Amgen reported financial results on October 27th, [as follows]:
- Revenue totaled $5.8 billion, up a mere 2% from the Q3 of 2015. Epogen and Neupogen were the problem on the sales front for Amgen. Sales for the drugs cascaded 31% and 36%, respectively.
- Earnings growth was more impressive as Amgen posted Q3 earnings per share of $2.68. This was an 8% increase over the $2.44 during the same year-ago period.
- Their new drugs did much better offsetting the poor performance from Epogen and Neupogen. Revenue for Kyprolis was up 34% year over year while bone disease product Prolia advanced by 18%.
- Amgen’s stock price has dropped from a high of $175 to $145 due to the ongoing concern with Epogen and Neupogen but the stock currently trades at just over 11 times next year’s expected earnings.
- Amgen announced a 27% increase in its dividend to $1.00 from the prior rate of $0.79 per share last December.
- It offers a five year dividend growth rate of 18%.
- Its next dividend increase at the end of this year should easily be in the double-digit range.
- It currently yields 2.75% and the next dividend will be paid to shareholders on December 8th…
3. Emerging Market Exposure & Steady Earnings; Colgate-Palmolive (CL)
Colgate-Palmolive is one [of the] world’s largest consumer product companies with exposure to large consumer product categories like shampoo, deodorants, oral care, and home products. The firm has a global reach with international sales at 75% of total revenue and operations in over 200 different countries.
- With the strong dollar and a move by investors into more cyclically focused companies, Colgate-Palmolive’s stock price has dropped by over 10% in the past three months.
- We think the company offers excellent value at the discounted price.
- 50% of its sales are now from faster growing emerging markets.
- The firm’s emerging markets sales grew by nearly 8% last year.
- It also has branched out into pet care with Hill’s, which helps growth and provides added diversification.
- Research and development accounts for over 10% of total sales per year and allows the firm to continually refine and produce new products.
Colgate released financial results in late October [as follows]:
- The company’s gross profit margin is improving, rising from 58.7% to 60.1% in the third quarter of 2016.
- Global sales declined 3.3% to $3,867 million during the quarter.
- Although price rose 3%, it was more than offset by a 4% drop in overall sales and a near 3% impact from currency.
- In April of this year, Colgate-Palmolive announced a regular quarterly dividend of $0.39, a 3% increase from the prior rate of $0.38 per share. It offers a 2.37% yield.
- Its next dividend payment will be made to shareholders in February 2017.
- The firm has paid dividends for 52 consecutive years.
Although the stock trades at a premium valuation of 21 times forward earnings, the stock offers an attractive yield, exposure to emerging markets, and a very stable dividend stream.
4. Outstanding Dividend Growth & Diversified Operations; CVS (CVS)
CVS Health combines one of the largest retail pharmacy chains in the United States with one of the largest pharmacy benefit managers. It has over 10,000 pharmacies across the United States, making the firm a large consumer company that dominates its industry alongside Walgreens Boots. It also offers its fast growing Minute Clinics.
Its acquisition of Omnicare should assist in future growth. CVS acquired the leading provider of pharmacy services to long term care facilities in May of last year. At the time, Omnicare had 13,000 employees at 160 locations in 47 states across the U.S. The acquisition will allow CVS to enter and expand its sales into assisted living and long term care facilities.
In addition to its large retail store distribution, CVS is one of the largest pharmacy benefit managers. This gives CVS not only scale, but diversification. Remarkably, a one-third of the revenue for CVS stores comes, not from pharmaceutical products, but consumer goods.
Shares of CVS have dropped precipitously over the past few months as the firm posted poor revenue and earnings results last month. The company cut its full-year 2016 earnings per share expectations to a range of $5.77 to $5.83, down from earlier expectations of $5.81 to $5.89. The stock has fallen a substantial 25% in the past three months, the worst performance of our featured 6 stocks. This is no doubt why CVS executives are stepping up to the plate. Seven separate insiders that have the title of “director” have bought CVS shares in the past 30 days according to SEC filings.
- Last December, CVS announced a regular quarterly dividend of $0.425, a 21% increase from the prior rate of $0.35 per share.
- The five year growth rate for dividends by CVS is a stellar 19% per year.
- Investors should expect another impressive increase next month from the CVS Board, based upon historical precedence.
- The next dividend payment will be made to investors in February 2017.
- The firm trades at mere 12.5 next year’s earnings and offers investors a solid 2.3% yield.
5. High Relative Dividend Yield & Leader in Vaccines; GlaxoSmithKline (GSK)
British firm GlaxoSmithKline ranks as one of the largest companies by market capitalization within the pharmaceutical sector. It was also recently featured as one of our top healthcare stocks. It main products includes vaccines, over-the-counter (OTC) medicines, and other health consumer products.
The Company’s Vaccines business is a leader in the world. It sells nearly 2 million vaccines each day to million of people over the globe. The firm focuses on the diseases such as meningitis, influenza, HIV, malaria, and Ebola.
The company recently had positive Q3 earnings results that beat consensus by 8%. It has several new key offerings including Bexsero in vaccines and respiratory drugs Incruse and Breo. Although it will lose Advair to generics in late 2017, its wide product mix and strong vaccine position will allow GSK to continue to grow by single digits.
- The stock has dropped by 13% in the past three months despite the positive earnings results.
- The stock trades at a mere 13 times next year’s estimates in earnings.
- Its price/sales ratio is near a historic low at 2.4
- The company has a very attractive dividend yield for investors of 4.77%.
- GlaxoSmithKline Plc announced its last regular quarterly dividend of $0.669 this past February. It was a 22% increase from the prior rate of $0.549 per share.
- The next quarterly dividend of $0.46 a share will be paid in January 12, 2017.
6. Top REIT Firm with Excellent Growth Prospects; Public Storage (PSA)
Public Storage is an equity real estate investment trust (REIT). It is the largest owner and operator of self-storage space in the U.S. The real estate firm holds more than 2200 self-storage locations. It holds key inventory in the fastest growing states in the U.S. including Florida, Texas, and California. Its operations span beyond the United States to include both Europe and Canada. The firm was founded in 1972 and went pubic in 1995. Public Storage has paid dividends consecutively for 23 years.
- The Glendale, California-based company reported third-quarter funds from operations (FFO) of $2.51 per share on October 27th. This compared with $2.27 a year ago. This was a rise of nearly 5% over last year’s levels.
- Occupancy for the largest REIT firm stands at 95.3%.
- The firm had revenue of $663.15 million for the quarter, which also beat analyst estimates of $624.13 million. The quarterly revenue figures were 7.3% higher than their quarterly revenue in the identical quarter last year.
- The stock has fallen over 15% in the past three months as the sector is highly exposed to a rise in interest rates. This is a great opportunity to pick up a leading real estate investment trust company at a low valuation.
- Public Storage’s dividend yield is well above that of the S&P 500 Index at 3.85%.
- The firm also maintains an impressive 3 year dividend growth rate of 12.4% and has paid out a dividend consecutively for the past 23 years.
- Public Storage also is a safety play with a low beta of 0.75.
- The quarterly dividend for the December payment will be $2.00 versus the prior year rate of $1.80 per share. The payment will be made on December 29, 2016, to shareholders of record at close of business on December 4, 2016.
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