Seeking Alpha
Long/short equity, deep value, special situations
Profile| Send Message|
( followers)  

Amidst an economic backdrop where the 30-year U.S. Treasury bond rates are 3.1% and the Fed plans to keep target interest rates at historical lows through 2015, it's not a bad time to take a look at some solid dividend stocks that offer yields in excess of of Treasuries and are solid.

By "solid", I mean companies that have a payout of earnings that is less than 50%, which helps ensure financial flexibility during tough economic times. The five stocks listed below are relatively low-key, unknown and not followed heavily by Wall Street. Not unsurprising, the majority of these high-quality, relatively unknown, dividend picks come from the energy related industry; meanwhile, the others operate in the computer services and media industry.

WGL Holdings Inc. (WGL), which sells and delivers natural gas provides a range of energy-related products and services to customers in D.C. and other metro areas in Maryland and Virginia. WGL pays a 3.9% dividend yield on a 37% payout of earnings. WGL posted solid December quarter results, showing EPS of $1.14, compared to Wall Street expectations of $1.04, and the natural gas utility business should continue to see a nice rebound over the interim, despite weakness from 2012 warmer than expected weather.

This natural gas company has also managed to steadily increase its dividend payment over the last five years ...

WGL Dividend Chart
(Click to enlarge)

Westar Energy Inc. (WR) provides electric generation, transmission and distribution services to customers in Kansas. Westar pays investors a 4.3% dividend yield on only a 29% payout of earnings. The story gets better for Westar, with the company trading at a low beta of 0.5, which makes the company a low volatility pick. Part of the testament to this low volatility is Westar's ability to average a return on equity of 10% over the last five years, while maintaining a steady capital structure of 50% debt to capital.

Westar Energy posted strong financial results in the fourth quarter 2012, with earnings coming in at $0.36 per share, up 125% year over year. This on the back of positive signs in the housing markets, where new houses and higher occupancy rates increase electric demand.

NextEra Energy, Inc. (NEE) is an electric power serving twenty-four states in the U.S. and three provinces in Canada. This energy company currently pays a 3.65% dividend yield, with a 52% payout ratio. NextEra Energy is one of the top U.S. utility companies in the U.S., seeing a rise in customers to 4.6 million in 2012, up from the 4.5 million in 2012, and on the back of an overall increase in usage per customer of 1.2%.

NextEra is actively involved in developing its alternative generation portfolio, with development of renewable generation units and natural gas generation. Its Riviera Beach and Port Everglades natural gas fired projects will also be operational in 2014 and 2016. The company also plans to spend upwards of $1.8 billion for wind and $2.2 billion for solar projects through 2016. Another encouraging fact about NextEra is that the company has managed to grow its dividend payment by 8% over the last five years. NextEra is also a great way to keep your portfolio "warm" (ream more about how).

SAIC, Inc. (SAI) operates across a number of segments, including defense, health, energy and civil solutions and cybersecurity. SAIC offers scientific, engineering and systems integration services for these segments for agencies that includes the United States Department of Defense, the United States Department of Homeland Security, and other United States Governments. SAIC has a 4% dividend yield and 37% payout ratio.

SAIC is considering the potential split of its two businesses, which would eliminate certain conflicts of interest with one company being a technical services and IT company, while the other would serve the national security industry with technology solutions.

Of late, SAIC has seen a downgrade, as it was grouped together with various defense contractors (read more about the variant view). However, the company also recently landed a contract from the U.S. Space and Naval Warfare Systems Center for providing production and installation services. The contract term is one year with four one-year option renewals, putting the full contract value at almost $900 million.

Gannett Co., Inc. (GCI) is a media company, with brands that includes USA TODAY and CareerBuilder. Gannett pays a 3.9% dividend yield, with a 45% payout of earnings. Gannett is adapting to multi-platform media, which currently includes Internet, mobile, tablet, social media networks and outdoor video advertising. Part of this includes Gannett's need to realign costs, where the company has launched Gannett Publishing Services in an effort to bring all domestic print production and distribution under one roof.

The company's long-term objective includes returning $1.3 billion to investors, and annual revenue growth of 2% to 4% by fiscal 2015. The keys to returning capital to shareholders will be its dividend. The company increased its dividend during the first quarter of 2012 by 150%.

Gannett trades at a EV/EBITDA of under 6 times, which is well below the industry average (includes the likes of the Washington Post, The New York Time and News Corp). Placing an industry average of 10 times on Gannett's 2013 estimated EBITDA and upside to the stock could be upwards of 100%. Gannett is also one of billionaire David Harding's most promising stock picks (see all here).

The above five stocks may well be picks you've never heard of, but I believe they are get places for finding dividends, where they are hidden from the hype of Wall Street. All five stocks have low payout ratios, but are also somewhat "unsexy", making them under-appreciated by investors.

Source: 5 Solid Low-Key Dividend Picks