In this article, I would like to highlight four of my favorite dividend stocks that are well known companies. Additionally, there is a secret ingredient that makes these stocks even more intriguing to me. I believe that these companies are worth a look for anyone's portfolio, particularly for those who would like growing dividends in addition to the chance of capital gains with major, large-cap companies.
The companies' stocks that will be highlighted in this article include Johnson & Johnson (JNJ), Verizon (VZ), McDonald's (MCD), and ConocoPhillips (COP). I previously had written about ConocoPhillips, among other stocks, and discussed the value of its spin-off of Phillips 66. The case for ConocoPhillips will be partly based on this analysis.
The secret that I believe that these companies' shares have, which could potentially unlock value for shareholders if it were to happen, is that these companies all have the ability to split their shares two for one. I am a believer that splitting shares creates significant value for the company and that it is well worth doing when the share prices have increased significantly. I view a stock split as generally meaning that the company believes its stock can sustain the minimum price after the split, and move forward and grow in price in the long run. There also is the added benefit that it makes the stock more affordable to investors in general, as it becomes cheaper to own 100 shares. All of these stocks are sitting near 52-week highs, and for ConocoPhillips, this is as a result of the combined value of share prices for it in addition to the shares received from the spin-off of Phillips 66. Not only are these companies' shares at 52-week highs, they also are at or near multi-year highs.
Most of these companies, and most of the companies in the Dow Jones Industrials, have not split their shares recently. One company that has is Coca-Cola (KO). Coca-Cola had last split its shares two for one on May 13, 1996, before splitting them again two for one on August 13, 2012. Based on adjusting the share price for splits, the price for Coca-Cola's shares as of the week of May 13, 1996 is $17.24. If someone owned 100 shares as of April 1996 and held them through now, they would now own 400 shares of the company after the second split (100*2*2). Coca-Cola's share price was $37.40 as of September 4, 2012, and today (May 7, 2013) it is currently trading at $42.49 per share. This is an excellent example of the share price continuing to rise steadily and how owners of the company increase the number of shares they own over time by stock splits. If someone held those 400 shares for another 16 years (assuming it would take 16 years for it to split two for one twice again), their original 100 shares would turn into 1,600 shares. It also currently has a dividend yield of 2.7%.
The first company I would like to look at for purposes of this analysis is Johnson & Johnson. It is currently trading at $85.35 today on May 7, 2013 and has a current dividend yield of 3.1%. Its 52-week high is $85.99. It last split its shares two for one in June of 2001. The following is a five-year price chart for shares of Johnson & Johnson.
As the chart shows, the shares are trading at a five-year high. In my opinion, a two for one stock split is a great idea at these price levels. Stock splits have not occurred as much in the largest companies over the past few years after the financial crisis, and if a few more companies start doing them, many more may follow suit. A two for one stock split here would bring the share price, as of today, down to $47.66 per share. This would bring the share price down to about where it was at its five-year low, and would reward shareholders with twice as many shares. The company has beaten analyst estimates for earnings in the previous four quarters reported and is pegged to have 6.49% annual growth over the next five years.
Verizon is another stock that has a history of steady performance, and it currently also is sitting near a 52-week and a five-year high. It currently has a dividend yield of 3.9%, which was much higher as recently as last year, but the increase in share price has lowered the dividend yield. This is great for shareholders though, as currently it is trading at $52.84 per share. This is slightly lower than its 52-week and five-year high of $54.31 per share. The company last split its shares two for one in June of 1998. The following is a five-year price chart of Verizon.
VZ data by YCharts
As the chart shows, not only is the stock sitting near a five-year high, but in the earlier years in the chart, the share price was about $30. A two for one split here would bring shares back down to $30, and would allow people to get back into the company at that price level. One hundred shares would cost about $2,600 rather than $5,200. With the news swirling that Verizon Wireless will be wholly purchased by Verizon, and due to the fact that it is such a stellar business, I think that Verizon is poised for future growth and strong earnings in the years to come. With its strong history of slowly but steadily increasing the dividend every year, this is a company that I would love to be able to get twice as many shares in.
McDonald's is the next company that stands out for me in this analysis. It currently has a dividend yield of 3% and is trading at $102.42 per share, just off its 52-week and five-year high of $103.70. Unfortunately for me, I sold the shares I bought near its 52-week low for around $90 per share and missed out on this continued run up. The company last split its shares two for one in March of 1999. The following is a price chart for the last five years for McDonald's.
MCD data by YCharts
This is another great chart for this analysis. If the company shares were split two for one, the share price would go back down to near the price levels that it was at in the beginning of this chart. With McDonald's pegged for 8.69% annual growth over the next five years, and due to the fact that it is the most recognizable name in fast food in the world, this is a great dividend stock that I would love to own even though I don't currently. It also has great strawberry lemonade and coffee and breakfast sandwiches.
ConocoPhillips is the final stock that I would like to look at in this example. The company last split its shares two for one in June of 2005, and it currently has a 4.3% dividend yield. The company spun off Phillips 66 last year, and Conoco's stock price today is trading at $62.93 per share, just off its 52-week high of $62.99. Phillips 66 is trading at $64.64 per share, and shareholders of Conoco received 1 share of Phillips 66 for every two shares they own when the spin-off occurred. I kept all of my shares of both companies when this split occurred. Based on that, I view the value of the shares to be ($32.32+62.99) $95.31. That needs to be kept in mind when viewing the following chart.
COP data by YCharts
Based on the chart above, the previous five-year high of Conoco was around $72 in 2008. After adding the value of Conoco and Phillips 66 as of today, the original shares of Conoco are at around $95 per share. A two for one split of Conoco shares would bring the share price back down to about $31, which is near the low point of this price chart. I believe that it would work wonders for the company, as shareholders could get in at around $31 per share. Conoco has beaten analyst expectations for earnings in the past four consecutive quarters and I believe it is a great name to own in its industry.
To summarize this article, I believe these companies are worth taking a look at due to the fact that they are all strong dividend payers. Furthermore, I view that there is a strong possibility that these stocks may split two for one if things keep going well in the market. That would lead to an increased bonus for shareholders to reward them for holding the shares long term. If more companies start splitting their shares two for one, more may follow suit and I believe this is a superb way to reward shareholders. Before deciding whether or not to invest in any of these companies, please conduct your own research and due diligence.