5 Dividend Stocks For 2013

Includes: BMY, COP, DLR, DUK, WM
by: Michael Fu

Going into 2013, investors are becoming more and more concerned over eventual rising interest rates, and are beginning to rotate out of interest-yielding bonds and into dividend-yielding stocks. Not all high-dividend-yielding stocks are good investments, however. Below, we attempt to identify 5 dividend-yielding stocks with strong business fundamentals and stable cash flows (recurring revenue) to potentially add to your portfolio. As usual, I will provide a valuation table with basic fundamentals for each stock listed.

Duke Energy Corporation (NYSE:DUK) provides electric and gas utility services to 4 million customers in North Carolina, South Carolina, Indiana, Ohio, and Kentucky. Electricity is generated by the following: 45% coal, 25% natural gas, 20% nuclear, 10% hydro, <1% solar. In July 2012, Duke completed its merger with Progressive Energy for $25 billion and is now the largest utility player in the U.S. The merger added 3 million customers in the Carolinas and Florida and is expected to be accretive in the first year. The company recently settled with North Carolina Utilities Commission, putting an end to the commission's investigation into the CEO change post-merger controversy.

DUK trades at 2013E P/E of 14.2x, Price-to-Book of 1.1x, and Dividend Yield of 4.8% (68% dividend payout ratio). Utility companies typically have high leverage because of fixed investment in generators and infrastructure, and DUK has a Net Debt/TEV of 44.1% and a Debt Rating of BBB+.

Digital Realty Trust (NYSE:DLR) is a specialty REIT that owns 92 properties in North America (87%) and Europe (13%, primarily in London) leasing +16 million square feet of datacenter space to telecom, internet and banking firms. It is the largest public owner/developer in the datacenter and internet gateway space, a niche real estate play. DLR currently has 94% occupancy leased to 550 tenants. DLR has high recurring revenue (13-year average lease terms with 7 years average remaining), and lease expirations of 5% in 2013, 10% in 2014, and 9% in 2015.

DLR trades at 2013E FFO multiple of 13.8x, Cap Rate of 6.7%, P/B of 2.4x, and Dividend Yield of 4.3% (60% dividend payout to FFO). REITs are also typically levered because they finance real estate properties with debt, and DLR has a Net Debt/TEV of 35.4% and a Debt Rating of BBB.

Conoco Philips (NYSE:COP) is one of the largest independent exploration and production (E&P) companies in the world with proven reserves of 8.5 billion barrels. As a standalone E&P, COP explores and produces crude oil, bitumen, natural gas and LNG with operations in the U.S., Norway, U.K, Canada, Australia, Timor Sea, Indonesia, China, Libya, Nigeria, Algeria, Qatar and Russia. On May 1, 2012, COP spun-off its downstream assets into Phillips 66 (NYSE:PSX) and began trading as a standalone exploration and production company.

In addition to the spin-off of PSX, the company has also sold off over $12 billion of non-core assets and repaid over $6 billion of debt to bring Net Debt/TEV down to less than 20%, with a Debt Rating of A. COP currently trades at a 2013E P/E of 9.7x, P/B of 1.5x, and Dividend Yield of 4.6% (44% dividend payout ratio).

Waste Management (NYSE:WM) is the largest waste disposal company in the U.S. serving 20 million customers through 287 transfer stations, 271 owned landfills, 98 recycling plants, and 127 beneficial use landfill gas projects. Revenue is from the following: 55% collection, 20% landfill, 10% waste-to-energy, 10% recycling, and 5% others. WM average remaining landfill life is 48 years and approximately 40% of WM's collection business has annual price increases based on CPI.

WM currently trades at 2013E EPS of 14.4x, P/B of 2.4x, and Dividend Yield of 4.2% (60.4% Dividend Payout). FYI, while not profiled in this article, Republic Services (NYSE:RSG) is another waste management stock that may be worth considering (14.6x 2013E P/E, 3.4% Dividend Yield, 49% Dividend Payout). RSG's dividend yield is less, but note that its dividend payout ratio is also lower.

Bristol-Meyers Squibb (NYSE:BMY) is a global biopharmaceuticals company that offers a wide range of prescription drugs. Approximately 65% of sales are from the U.S. and 35% are from abroad. The company's current three largest selling drugs as of 3Q2012 are Abilify (18% of sales), Sustiva (10% of sales) and Reyataz (10% of sales). Plavix used to be the company's top-selling drug, but its patent expired in 2012 and its sales have declined as a result (only $2.6 billion in 2012 sales, down from $7 billion in 2011 sales). All pharmaceutical stocks are high dependent on their existing product patent expirations and new product development pipeline. Sales have declined due to Plavix patent expiration, but newer products such as Yervoy for melanoma, Sprycel for leukemia, Orencia for arthritis, and Onglyza for diabetes should help offset the sales losses from Plavix. In August 2012, BMY acquired Amylin Pharmaceuticals for $7 billion cash (its key drug consists of Byetta and Bydureon for diabetes).

BMY current trades at 2013E EPS of 17.6x, P/B of 3.9x, and Dividend Yield of 4.3% (76% Dividend Payout). FYI, while not profiled in this article, GlaxoSmithKline (NYSE:GSK) is another biopharmaceuticals stock that may be worth considering (12x 2013E P/E, 5.3% Dividend Yield, 65% Dividend Payout).

Disclosure: I am long DLR, DUK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.