10 Dividend Stocks for Enterprising Investors

Last month, I introduced the Dividend Portfolio and it turned out to be one of my most popular posts of the month. Friday is the day to update the portfolio, but I have decided to split it into two parts. Since the portfolio is based on a screen of the valuation database’s top dividend payouts for the enterprising investor, I thought it would be best to put the screen here and expand on the merits of each company. Later I will have another post that includes the update for the portfolio. If you find this method of updating the portfolio better than the way I updated the Low PE portfolio earlier this week, please leave a comment to let me know.

This screen targets the top dividend payouts out of the companies I follow here on Modern Graham that pass the tests for the enterprising investor, updated from Benjamin Graham’s tests presented in The Intelligent Investor.

Specifically, here are the tests required for the enterprising investor (must pass at least 4 of the following 5 tests):

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1
3. Earnings Stability – positive earnings per share for at least 5 years
4. Dividend Record – currently pays a dividend
5. Earnings growth – EPSmg greater than 5 years ago

Additionally, a company can qualify for the enterprising investor if it passes the tests for the defensive investor.

This month, the screen produced the following companies:

• Psychemedics Corp. (PMD) (23.38% dividend yield) – Psychemedics Corp nearly qualifies for the defensive investor as well as the enterprising investor, but falls short due to not having a large enough market cap and not having a long enough dividend history. The company does pass all of the tests for the enterprising investor, however. The last valuation of the company came out to a value of $8, and it seems the company’s current price is estimating a growth rate of only about 1%. The company has a strong balance sheet and would have a great dividend even if it ends up cutting it by 75%. I should note that the dividend yield may be artificially high (this data gets drawn from Yahoo!) as it appears the company made a special dividend last December when they started paying dividends.
• B&G Foods Inc (BGS) (8.45%) – B&G Foods passes four out of the five tests for the enterprising investor. The company fails the test for debt to net current assets. The latest valuation came to $14, and the market is currently only estimating a growth rate of a little over 3%. The company has grown normalized earnings from $0.17 in 2004 to an estimated $0.45 per share in 2009. There are certainly some minor concerns with the company – I don’t like the overall debt level – but it does pass the tests and seems to be stable enough with a strong dividend yield.
• National Presto Industries (NPK) (6.10%) – National Presto is a favorite of mine (and was a favorite of Graham himself – see chapter 15 of The Intelligent Investor). The company passes every single test for both the defensive and enterprising investors except for market cap. The current ratio is outstanding at 5.76 and there is no debt. The company pays dividends on an annual basis, and has increased the dividend from $0.75/share in 2005 to $4.55/share in 2009. In addition normalized earnings have grown from $1.76/share in 2003 to an estimated $6.11/share in 2009.
• International Shipholding Corp. (ISH) (5.79%) – International Shipholding Corp. does not look good for the defensive investor (passes only three out of seven tests), but is good for the enterprising investor, failing only the debt to net current assets ratio test. The company has achieved significant growth in normalized earnings from $0.28 in 2005 to an estimated $3.50 in 2009, and has a solid dividend.
• Bristol-Myers Squibb Company (BMY) (5.51%) – Bristol-Myers Squibb is another that is only suitable for the enterprising investor. The company’s balance sheet is pretty solid – current ratio of 2.16, but it has had trouble achieving income growth lately. As a result, the dividend has only increased from $0.98/share annually in 2000 to $1.24/share annually today. Nevertheless, the yield on the dividend is strong.
• Olin Corp (OLN) (5.12%) – Olin does not pass the tests for the defensive investor due to a lower market cap and negative earnings in 2001 and 2002. However, the company has a pretty strong balance sheet and if it can make it through the recession without earnings suffering too much – I believe it can – then it will emerge well.
• E.I. du Pont de Nemours and Company (DD) (4.91%) DuPont is only suitable for the enterprising investor. The company needs to improve its current ratio and improve its earnings growth in order to satisfy the defensive investor. However, earnings have been steady, which is a key component for a dividend investing strategy.
• Pfizer Inc (PFE) (4.70%) – Pfizer is suitable for both types of investors and the only area it could improve is earnings growth. Normalized earnings have only grown from $1.03 in 2004 to an estimated $1.37 this year. The balance sheet is strong, though, and despite cutting the dividend rate this year the yield is still pretty good.
• Merck & Co Inc (MRK) (4.65%) – Merck is in the same boat as Pfizer. Strong balance sheet and stable earnings but poor growth. Not much else to say about it.
• Philip Morris International (PM) (4.52%) – Philip Morris is a newcomer to this screen. Last month General Electric (GE) held this spot, but GE is no longer suitable for the enterprising investor, so Philip Morris rises. The company could improve its current ratio but has strong earnings growth. Normalized earnings have gone from $1.27 in 2004 to $3.04 today.

Disclosure: At time of publication, author was long NPK and PFE.

Photo by Benjamin Clark.

Comments

[joyboy:]

Why not consider a partnership stock that pays well over 7 percent and more?
Take a look at Ferrell Gas Products {FGP}.
Also, this provides a means for no taxes usually.
Have had this stock for several years..the dividends keep rolling in..sweet.

Nov 06 01:00 PM

[Matthew J G...:]

I would argue one point here....To put Merck and Pfizer in the same boat shows a lack of insight bthat screeners and quick reviews of financials wont provide. Illustrating only a lack of growth and pointing out dividends as a balancing factor overlooks the greater acquisition strategy of these firms. Merck's acquisition of Schering definitely provides a boost and makes it, I believe,the #2 drugmaker and gives it greater leverage for future deals, pricing, R&D, etc.This is a great investment as opposed to PFE which not only LACKED growth but was facing numerous patent expirations and lacking any suitable strategy to counter that, they slashed the dividend to preserve capital.

I dare say that hose of us who bought MRK in the last few weeks are feeling a lot more secure in the future than PFE shareholders!

Nov 06 03:50 PM

[jculley:]

PFE had something like $30 billion in cash before acquiring Wyeth. They cut the dividend to help pay for the acquisition, they were announced together.

PFE is a trash stock in my opinion but not for your incorrect assumptions about their cash position.


On Nov 06 03:50 PM Matthew J Goldseth wrote:

> I would argue one point here....To put Merck and Pfizer in the same
> boat shows a lack of insight bthat screeners and quick reviews of
> financials wont provide. Illustrating only a lack of growth and pointing
> out dividends as a balancing factor overlooks the greater acquisition
> strategy of these firms. Merck's acquisition of Schering definitely
> provides a boost and makes it, I believe,the #2 drugmaker and gives
> it greater leverage for future deals, pricing, R&D, etc.This
> is a great investment as opposed to PFE which not only LACKED growth
> but was facing numerous patent expirations and lacking any suitable
> strategy to counter that, they slashed the dividend to preserve capital.
>
>
> I dare say that hose of us who bought MRK in the last few weeks are
> feeling a lot more secure in the future than PFE shareholders!

Nov 06 10:46 PM

[buoy:]

Currently PFE is doing a lot of talking. How they are going to do this and that with the new merger. I'm leary because PFE has done nothing but go downhill the last ten years.

Nov 07 09:15 AM

[NICK LIBRIZZI:]

Take a look @ CIM should yield 15% in 2010 just got upgraded by Credit Suisse We are increasing our target price to $4 (from $3.50) as a result of our higher earnings estimates. Our target represents a
15% yield on the 2010 dividend. Our target yield is 50 bps higher to reflect the increased risk given that Chimera is now
holding more bonds with subordinated cash flows.

Nov 07 09:37 AM

[User 168560:]

NPK, National Presto, according to TD Ameritrade and Yahoo Finance pays a dividend of $1.00! Not $4.55.

Nov 07 10:46 AM

[funfun:]

Unlike Pfizer, which remains the number one global drug company, mismanaged DuPont has slid from number one to eight in revenues amongst chemical enterprises in ten years! This relentless decline, for which recent quarters show no signs of abatement, will continue to put pressure on the Company's rich yearly dividend of $1.64 a share, in my opinion. Lost sales, lost customers, lost talent and ideas do not create cash flow with vigour.

Merely the observation of one retail investor...funfun..

Nov 07 10:50 AM

[367113:]

if you look at LP. then look at EPD. I think it is one of the best.

Nov 07 11:02 AM

[Allan J. Mo...:]

I love my Pony - PNY - Piedmont Natural Gas. The territory keeps
growing, the customer base also grows, and the dividend increases
keep coming. Besides, they give a .0562% discount on reinvested
dividends.

Nov 07 11:27 AM

[LaChic:]

why not buy the global water etf CGW? 7% yield, not only that, we are going to need a lot of it in the years to come, so it will do very well down the road.

Nov 07 11:53 AM

[User 482351:]

No mention of Verizon?

Nov 07 12:07 PM

[GimliJan:]

I looked forward to reading this article and came away disappointed. I try to follow the value investing philosophy of Benjamin Graham, Warren Buffet, etc. but also need growth.
I have watched Pfizer, Bristol-Meyers, Merck and Dupont since I started investing last November. None of them has impressed me with their performance versus the dividend stocks and MLP's I purchased and hold or held. (Buy and Hold is not dead as advertised by many pundits). I have not run the calculations to see how many of the metrics described my choices met, but all except one met my three most important metrics.
1.) They pay a dividend that has been consistent over a long time.
2.) The stock price has shown growth or at least stability. Stability measured by how the stock price has performed in it's industry group and market.
3.) I have made or am making a profit!
You will see that I have a mix of SuperOil. MLP's Pipeline Operators, Canadian Energy Trusts, Technology & Utility Stocks.
I plan on holding these long term and adding overseas dividend companies and US companies in the Food, Agriculture, Water Utilities sectors.
I have other speculative holdings in my portfolio in Pharmacuetical stocks that are smaller companies that have huge growth potential on drug approvals.
Teppco (TPP now a part of EPD) Bought from $18.92 to $35
Converted to EPD stock at 1 to 1:24 at $28.85 a share. Cash Distribution for TPP was 8.9%, for EPD is $2.21 / 7.75%
Kinder-Morgan Energy Partnership (KMP) Bought at $47.74 Current Price $55.07 Cash Distribution $4.20 / 7.63%
Pengrowth Energy Trust (PGH) Bought at $9.38 Current Price $9.55 Cash Distr $0.79 / 8.23%
Provident Energy Trust (PVX) Bought at $6.50 Current Price $6.55 Cash Distr $0.70 / 10.52%
Microsoft (MSFT) Bought at $21.82 Current Price $28.52 Dividend $0.52 / 1.82%
Intel (INTC) Bought at $16.24 Current Price $18.93 Dividend $0.56 / 2.96%
Ituran Control (ITRN) Bought at $8.63 Current Price $12.60 Dividend $0.17 / 1.35%
Duke Energy Corp. (DUK) Bought at $15.94 Current Price $16.05 Dividend $0.96 5.98%
Corning (GLW) Bought at $15.85 Current Price $15.30 Dividend $0.20 / 1.31%
British Petroleum (BP) Bought at $35.50 Sold at $57.95 & 57.20 Dividend 6.8%
I sold BP last week due to anticipation of a market correction. I plan on buying back in at a lower price.
GE Bought at $16.05 Sold $14.91 (Only Loss on Stock Price) Dividend
I owned GE until last week when I felt an overdue market correction would wipe out my small profit so I cashed out to buy back in at a lower price.

Nov 07 12:24 PM

[Dotcom:]

VZ & T both IMHO


On Nov 07 12:07 PM User 482351 wrote:

> No mention of Verizon?

Nov 07 02:25 PM

[Dotcom:]

Chart - PNY, ETP, EPD, OKS, KMP - I guess PNY is not an MLP which is advantageous in some ways, but I like the high dividends form the MLPs and my CPA deals with the tax difficulties associated with MLPs in an IRA. Must be 3 letter acronym day, ehh?


On Nov 07 11:27 AM Allan J. Mortenson wrote:

> I love my Pony - PNY - Piedmont Natural Gas. The territory keeps
>
> growing, the customer base also grows, and the dividend increases
>
> keep coming. Besides, they give a .0562% discount on reinvested<br/>d...

Nov 07 02:29 PM

[Dotcom:]

Good stuff. I've been watching BP and think it might be a good buy at $48. One thing that concerns me and is the PE of 20.


On Nov 07 12:24 PM GimliJan wrote:

> I looked forward to reading this article and came away disappointed.
> I try to follow the value investing philosophy of Benjamin Graham,
> Warren Buffet, etc. but also need growth.
> I have watched Pfizer, Bristol-Meyers, Merck and Dupont since I started
> investing last November. None of them has impressed me with their
> performance versus the dividend stocks and MLP's I purchased and
> hold or held. (Buy and Hold is not dead as advertised by many pundits).
> I have not run the calculations to see how many of the metrics described
> my choices met, but all except one met my three most important metrics.
>
> 1.) They pay a dividend that has been consistent over a long time.
>
> 2.) The stock price has shown growth or at least stability. Stability
> measured by how the stock price has performed in it's industry group
> and market.
> 3.) I have made or am making a profit!
> You will see that I have a mix of SuperOil. MLP's Pipeline Operators,
> Canadian Energy Trusts, Technology &amp; Utility Stocks.
> I plan on holding these long term and adding overseas dividend companies
> and US companies in the Food, Agriculture, Water Utilities sectors.
>
> I have other speculative holdings in my portfolio in Pharmacuetical
> stocks that are smaller companies that have huge growth potential
> on drug approvals.
> Teppco (TPP now a part of EPD) Bought from $18.92 to $35
> Converted to EPD stock at 1 to 1:24 at $28.85 a share. Cash Distribution
> for TPP was 8.9%, for EPD is $2.21 / 7.75%
> Kinder-Morgan Energy Partnership (KMP) Bought at $47.74 Current Price
> $55.07 Cash Distribution $4.20 / 7.63%
> Pengrowth Energy Trust (PGH) Bought at $9.38 Current Price $9.55
> Cash Distr $0.79 / 8.23%
> Provident Energy Trust (PVX) Bought at $6.50 Current Price $6.55
> Cash Distr $0.70 / 10.52%
> Microsoft (MSFT) Bought at $21.82 Current Price $28.52 Dividend $0.52
> / 1.82%
> Intel (INTC) Bought at $16.24 Current Price $18.93 Dividend $0.56
> / 2.96%
> Ituran Control (ITRN) Bought at $8.63 Current Price $12.60 Dividend
> $0.17 / 1.35%
> Duke Energy Corp. (DUK) Bought at $15.94 Current Price $16.05 Dividend
> $0.96 5.98%
> Corning (GLW) Bought at $15.85 Current Price $15.30 Dividend $0.20
> / 1.31%
> British Petroleum (BP) Bought at $35.50 Sold at $57.95 &amp; 57.20
> Dividend 6.8%
> I sold BP last week due to anticipation of a market correction. I
> plan on buying back in at a lower price.
> GE Bought at $16.05 Sold $14.91 (Only Loss on Stock Price) Dividend
>
> I owned GE until last week when I felt an overdue market correction
> would wipe out my small profit so I cashed out to buy back in at
> a lower price.

Nov 07 02:37 PM

[April May:]

OK, I understand taking profits in anticipation of a market correction, but what can you do with stocks that are still below your purchase price? I hold many that are still 30-40% in the red, yet they pay decent dividends. Would you all advise to sell now, take the loss, and give up the dividends? How would you know they will lose more--perhaps they've already bottomed out?

Nov 07 05:01 PM

[joelee:]

April May,
If the dividends are not decreasing, one idea is to just start selling covered calls on them to beef up the return while you wait for them to increase in share price. If the current dividend cash flow meets your needs, and you don't have any other reason to sell, then you don't really lose anything by keeping them. But if they are not keeping up with market uptrends or dividends are decreasing, then maybe it's time to re-evaluate your holdings. If you don't know how, it might be worth paying a professional (or sign up with an advisory service on the web, most have a free trial period) to get some new recommendations. You should at least get a yearly re-evaluation of your holdings, as things are always changing. Just my amateur opinion.


On Nov 07 05:01 PM April May wrote:

> OK, I understand taking profits in anticipation of a market correction,
> but what can you do with stocks that are still below your purchase
> price? I hold many that are still 30-40% in the red, yet they pay
> decent dividends. Would you all advise to sell now, take the loss,
> and give up the dividends? How would you know they will lose more--perhaps
> they've already bottomed out?

Nov 08 01:42 AM

[Bob Shreve:]

I'm only familiar with 2 of the stocks that this author believes are good dividend producers, and he is dead wrong about them.

Pfizer cut its dividend in half in January. It's yield based on this year's dividends is 5.6% (a/o 11/6). It's yields, based on dividends since the cut (forward yield), is 2.8%. When management cuts dividends to pay for acquisitions, that is probably not a good dividend stock.

Merck's current dividend is an okay 4.6%. It hasn't raised its dividend in 4 years and the last annual raise totaled $.02. This is not really a good candidate for a dividends investor.

This article is proof that stock screens are only the first step. Additional research is mandatory. This article obviously lacks that.
Regards,
Bob

Nov 08 07:51 AM

[bobbybutte:]

as aperson who makes aliving from writing a dividend newsletter I appreciate the emphasis on dividends and realize the power of reinvested dividends

Having said that the trcik is to find stable companies whose cash flows remain consistent so that the dividend can be raised

Josh peters of morningstar has a good theory but many of his stocks cut or eliminated their dividend

Leaving the investor to be like the rat in the trap that decides he no longer enjoys cheese

Nov 08 11:15 AM

[Plan B Econ...:]

In case anyone needs good reasons to invest in dividend-paying stocks...

Why dividends? Here's the answer: www.planbeconomics.com.../

Nov 08 02:36 PM

[No Free Cake:]

NPK paid a regular dividend of $1.00 in Feb. It paid an additional $4.55 special dividend at the same time. See:
www.gopresto.com/infor...


On Nov 07 10:46 AM User 168560 wrote:

> NPK, National Presto, according to TD Ameritrade and Yahoo Finance
> pays a dividend of $1.00! Not $4.55.

Nov 08 06:00 PM

[User 422955:]

PMD & BGS both have EPS' which are less than their dividends. I'm a dividend investor and they just failed on one of my screens.

Neither Nick Librizzi nor 367113 have personal profiles. Yet they recommend stocks without any supporting evidence. I consider this to be very suspicious, though not rising to the level of "abuse."

Nov 08 07:52 PM

[jadick:]

Regard PMD - - The special dividend ($.50) aside, this stock throws off $.120 to $.170 per quarter and looks to be yielding in the range of 8 to 10 % over the past year. Not too shabby.

Nov 08 09:56 PM

[April May:]

Thanks for the link ! I'll hold on a few more months. With the majority of stocks above the moving averages, the rally should continue a while longer.


On Nov 08 07:08 PM TradeWithoutMoney wrote:

> Market will rally tomorrow as it always seems to do
>
> some Sunday reading: financeopinionss.blogs...

Nov 09 01:06 AM

[mbkelly75:]

The PREVIOUS dividend was $1.00. The CURRENT dividend is $4.55. Your sources are out-of-date. I do not agree with everything the writer says - but he is right about this.


On Nov 07 10:46 AM User 168560 wrote:

> NPK, National Presto, according to TD Ameritrade and Yahoo Finance
> pays a dividend of $1.00! Not $4.55.

Nov 09 09:21 AM

[User 165514:]

Regarding NPK- I read the article and the discussion, checked sources including Schwab & Finviz who also report $1.00 as the dividend. Checked www.gopresto.com/infor...
relevant portion: " Finally, The Board of Directors of National Presto Industries, Inc. announced the 2008 dividend which consists of the regular dividend of $ 1.00 per share, plus an extra of $4.55. "
Finally spoke with NPK's investor relations Norma Janke to recap all this.

Dividend investors should be concerned that a company would jump to paying a continuing $5.55 on estimated 2009 earnings of $7.67 (Schwab est.)
Despite all this, If Benjamin Clark or others have information suggesting an increase in base dividend or continuing distribution of an extra dividend, please post basis of info.

My conclusion is that the dividend is unchanged at $1.00 and the "extra" is not guaranteed.

Nov 12 01:54 PM

[mbkelly75:]

Good job !!!1 I was wondering about that after my post, but had too many grandkids around at the time I thought of it to go and check it. Finviz is a source I use also along with several others. One problem that occasionally comes up online is that places list the LAST dividend as the current one. I was slow on the uptake on this one. Thank you for checking more and doing so well at it. Once again, good work !!!!


On Nov 12 01:54 PM User 165514 wrote:

> Regarding NPK- I read the article and the discussion, checked sources
> including Schwab &amp; Finviz who also report $1.00 as the dividend.
> Checked www.gopresto.com/infor...
>
> relevant portion: " Finally, The Board of Directors of National
> Presto Industries, Inc. announced the 2008 dividend which consists
> of the regular dividend of $ 1.00 per share, plus an extra of $4.55.
> "
> Finally spoke with NPK's investor relations Norma Janke to recap
> all this.
>
> Dividend investors should be concerned that a company would jump
> to paying a continuing $5.55 on estimated 2009 earnings of $7.67
> (Schwab est.)
> Despite all this, If Benjamin Clark or others have information suggesting
> an increase in base dividend or continuing distribution of an extra
> dividend, please post basis of info.
>
> My conclusion is that the dividend is unchanged at $1.00 and the
> "extra" is not guaranteed.

Nov 12 05:39 PM

[mbkelly75:]

Hello April - It is a good question. Stocks that are still below your purchase price can look bad, BUT what is your cost-basis on those stocks. You did not say what stocks you have or needed a suggestion on. Every time you collect a dividend - your cost of that stock is lowered by the amount of that dividend. If you are re-investing that dividend in a good company that just has a lower price - it is not a big deal and will repair itself over time. The only effect is that you will get more dividends in the future as the dividends compound. That is a good thing and fortunes can be made that way over time.
If it is a broken company and not just a broken stock or you find a better investment for your money - sell. I have held onto a few stocks for better than 50 (fifty) years and a few I have sold in a month or two. I have two portfolios: 1) Core Portfolio (exactly what it sounds like - core stocks that I may never sell - solid companies that have been paying a RISING dividend for a minimum of 5 years and 2) Exploration Portfolio - this is the experimental one, this one is the trading portfolio. I use a mix of fundamental and technical indicators to find stocks that are selling at a discount and use 3 Moving Averages to determine if they are a buy yet or not. The MAs can also tell you if your stocks should be sold and bought back later by the same method. Here it is: if the 20 Day MA is above both the 50 Day and the 200 Day - the stock is trending up and you can buy here or hold onto a stock you already own. If the 20 Day has moved below the 200 Day MA - that forms a Death Cross and the stock is trending down - possibly seriously - and you do NOT buy - it is also a time to sell for later buyback. Once the 20 Day MA moves back above the 200 Day - that forms a Golden Cross and the stock is now trending up and you have a great time to buy or buy back. I use the 50 Day MA mainly to let me know that there is something going on that I have to pay attention to. The other use for a 50 Day MA is that if an entire market (S&P 500, NASDAQ, whatever) is above the MA - it is still trending up, but if it is below the MA - it is trending down. I would rather follow and take note of individual stocks - some of which will go up even if the market as a whole is trending down. As John Templeton said first "There is ALWAYS a Bull Market somewhere." I tend to look for the stock that is trending up to buy rather than selling short stocks that are moving down. Ben Graham among others said never to buy stocks that are trending down but to wait until they are trending up again. I am more comfortable that way. Going back to your original question - Peter Lynch said this:
"Often there is no correlation between the success of a company's operations and the success of it's stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of a company and the success of it's stock. This disparity is the key to making money; it pays to be patient and to own successful companies."


On Nov 07 05:01 PM April May wrote:

> OK, I understand taking profits in anticipation of a market correction,
> but what can you do with stocks that are still below your purchase
> price? I hold many that are still 30-40% in the red, yet they pay
> decent dividends. Would you all advise to sell now, take the loss,
> and give up the dividends? How would you know they will lose more--perhaps
> they've already bottomed out?

Nov 15 08:31 AM

[19709:]

You could sell now, wait 31 days and repurchase thus increasing your dividend yield while also talking losses for tax write offs.


On Nov 07 05:01 PM April May wrote:

> OK, I understand taking profits in anticipation of a market correction,
> but what can you do with stocks that are still below your purchase
> price? I hold many that are still 30-40% in the red, yet they pay
> decent dividends. Would you all advise to sell now, take the loss,
> and give up the dividends? How would you know they will lose more--perhaps
> they've already bottomed out?

Nov 17 01:46 PM