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This year has been favorable for stocks; the return of the S&P 500 index year-to-date is at 23.52% while one year return of the index is at 23.40%, these compared to 14.15% the average annual return for the last three years and an average annual return of 12.70% for the last five years.

Most of S&P 500 companies are paying dividends. As a matter of fact, 418 of them are paying dividends, 212 have a dividend yield greater than 2%, 87 companies have a yield greater than 3%, and 36 companies have a yield of over 4%.

A Ranking system sorts stocks from best to worst based on a set of weighted factors. Portfolio123 has a powerful ranking system which allows the user to create complex formulas according to many different criteria. They also have highly useful several groups of pre-built ranking systems, I used one of them the "ValueRank" in this article.

The "ValueRank" ranking system is quite complex, and it is taking into account dividend yield, sales growth, trailing P/E, price-to-book ratio, price-to-sales ratio and return on equity, as shown in the Portfolio123's chart below.

In order to find out how such a ranking formula would have performed during the last 15 years, I ran a back-test, which is available by the Portfolio123's screener. For the back-test, I took all the 7,014 stocks in the Portfolio123's database.

The back-test results are shown in the chart below. For the back-test, I divided the 7,014 companies into fifty groups according to their ranking. The highest ranked group with the ranking score of 98-100, which is shown by the dark blue column in the chart, has given by far the best return, an average annual return of about 22%, while the average annual return of the S&P 500 index during the same period was about 2% (the red column at the left part of the chart). Also, the second and the third group (scored: 96-98 and 94-96) have given superior returns. This brings me to the conclusion that the ranking system is useful.


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After running the "ValueRank" ranking system on the companies which are included in the S&P 500 index, on November 02, I discovered the ten best value dividend stocks, which are shown in the charts below. In this article, I describe three stocks among the best "ValueRank" ranking ten stocks (I described the first stock Valero Energy Corp. (NYSE:VLO) in one of my previous articles). In my opinion, these stocks can reward an investor a significant capital gain along with a rich dividend. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Yahoo Finance, Portfolio123 and finviz.com.

Rank

Ticker

Name

Last Price

Market Cap $million

Industry

1

(VLO)

Valero Energy Corp

41.00

22,226

Oil, Gas & Consumable Fuels

2

(NYSE:MUR)

Murphy Oil Corp

60.40

11,288

Oil, Gas & Consumable Fuels

3

(NYSE:CVX)

Chevron Corp

118.01

227,998

Oil, Gas & Consumable Fuels

4

(NYSE:LLL)

L-3 Communications Holdings Inc

100.76

8,972

Aerospace & Defense

5

(NYSE:AFL)

AFLAC Inc

65.10

30,318

Insurance

6

(NYSE:TEG)

Integrys Energy Group I

59.11

4,669

Multi-Utilities

7

(NYSE:DE)

Deere & Co

81.64

31,256

Machinery

8

(NYSE:TSO)

Tesoro Corp

47.82

6,485

Oil, Gas & Consumable Fuels

9

(NYSE:CTL)

CenturyLink Inc

33.58

20,289

Diversified Telecommunication Services

10

(NYSE:ANF)

Abercrombie & Fitch Co.

36.90

2,819

Specialty Retail


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Murphy Oil Corporation

Murphy Oil Corporation engages in the exploration and production of oil and gas properties worldwide.


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Source: company presentation

Murphy Oil Corporation has a low debt (total debt to equity is only 0.29), and it has a very low trailing P/E of 12.06 and even a lower forward P/E of 9.27. The price-to-sales ratio is very low at 0.47, and the price-to-book value is also low at 1.25. The PEG ratio is very low at 0.83, and the average annual earnings growth estimate for the next five years is quite high at 12.47%. The forward annual dividend yield is at 2.07%, and the payout ratio is only 25.8%. The annual rate of dividend growth over the past three years was at 4.38%, and over the past five years was at 4.58%.

Murphy Oil Corporation has recorded strong EPS and revenue growth and moderate dividend growth, during the last three years, as shown in the table below.

Murphy Oil's return on capital has been much better than that of the industry median and the sector median, as shown in the table below.


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Most of Murphy Oil's stock valuation parameters have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.


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Source: Portfolio123

Murphy Oil Corporation has recorded sustainable production growth, and it has continued returning value to shareholders, as shown in the charts below.


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Source: company presentation

On October 30, Murphy Oil Corporation reported its third-quarter financial results, which missed EPS expectations by $0.12.

The company announced that net income, which includes the results of discontinued operations, was $284.8 million ($1.51 per diluted share) in the third quarter 2013 compared to $226.7 million ($1.16 per diluted share) in the 2012 third quarter. Income from continuing operations in the third quarter of 2013 was $252.1 million ($1.34 per diluted share) compared to $211.7 million ($1.08 per diluted share) in the third quarter of 2012. Income from continuing operations increased in 2013 compared to the prior year, primarily due to higher crude oil production levels.

On August 30, 2013, the company completed the separation of its U.S. downstream operations into a new publicly owned company named Murphy USA Inc. The results of these U.S. downstream operations are reported as discontinued operations for all periods presented, and are excluded from Murphy Oil's net income after the separation date. Discontinued operations generated income of $32.7 million ($0.17 per diluted share) in the 2013 third quarter compared to income of $15.0 million ($0.08 per diluted share) in the 2012 quarter. Upon separation, Murphy USA Inc. paid Murphy Oil Corporation a $650 million cash dividend that was primarily used by the Company to repay a portion of its long-term debt.

Murphy Oil Corporation has compelling valuation metrics and good earnings growth prospects. In my opinion, MUR stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy and a decline in the price of oil.


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Chart: finviz.com

Chevron Corporation

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide.

Chevron Corporation has a very low debt (total debt to equity is only 0.13), and it has a very low trailing P/E of 9.66 and a very low forward P/E of 9.78. The PEG ratio is at 1.36, and the average annual earnings growth estimates for the next five years is at 7.03%. The forward annual dividend yield is quite high at 3.39%, and the payout ratio is only 29.8%. The annual rate of dividend growth over the past three years was high at 11.59%, and over the past five years was also high at 9.00%.

Chevron Corporation has recorded strong revenue, EPS and dividend growth during the last three years, as shown in the table below.

Chevron's return on capital has been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.


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Most of Chevron's stock valuation parameters have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.


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Chevron is returning value to shareholders, as shown in the charts below.


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Source: company presentation

On November 01, Chevron reported its third-quarter financial results, which missed EPS expectations by $0.14. The company reported earnings of $5.0 billion ($2.57 per share - diluted) for the third quarter 2013, compared with $5.3 billion ($2.69 per share - diluted) in the 2012 third quarter. Sales and other operating revenues in the third quarter 2013 were $57 billion, compared to $56 billion in the year-ago period. In the report, Chairman and CEO said:

Our third quarter earnings were down from a year ago, primarily reflecting lower margins for refined products in the current period. We continue to make good progress on our major capital projects. Construction continues, and important milestones are being reached, on our Gorgon and Wheatstone LNG projects in Australia. Important interim construction goals have been recently reached for our Jack/St. Malo and Big Foot deepwater projects in the Gulf of Mexico, in preparation for their project start-ups scheduled for late 2014. We are also moving forward on the development of our liquids-rich unconventional properties in the United States.

Chevron has compelling valuation metrics, and good earnings growth prospects. In my opinion, CVX stock can move higher. Furthermore, the rich dividend represents a nice income.

Since the company is rich in cash ($11.60 a share) and has a low debt and its payout ratio is very low, there is hardly a risk that the company will reduce its dividend payment.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, lower refining margins and a decline in the price of oil.


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Chart: finviz.com

L-3 Communication Holdings Inc.

L-3 Communication Holdings, Inc. provides command, control, communications, intelligence, surveillance, and reconnaissance systems; aircraft modernization and maintenance; and national security solutions in the United States and internationally.

L-3 Communication Holdings has a very low trailing P/E of 11.69 and a very low forward P/E of 12.37. The price to free cash flow is very low at 10.62, and the price-to-sales ratio is also very low at 0.71. The forward annual dividend yield is at 2.18%, and the payout ratio is only 24.7%. The annual rate of dividend growth over the past three years was high at 11.17% and over the past five years was also high at 12.88%.

The LLL stock price is 5.89% above its 20-day simple moving average, 7.01% above its 50-day simple moving average and 17.56% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

L-3 Communication Holdings has recorded EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

L-3 Communication's return on capital has been much better than that of the industry median and the sector median, as shown in the table below.


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Most of L-3 Communication's stock valuation parameters have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.


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On October 29, L-3 Communication reported its third-quarter financial results, which beat EPS expectations by $0.02. The company reported diluted earnings per share from continuing operations of $2.23 for the quarter ended September 27, 2013 compared to $1.98 for the quarter ended September 28, 2012. The 2013 third quarter included tax benefits of $24 million ($0.26 per diluted share) compared to $11 million ($0.11 per diluted share) for the 2012 third quarter. Net sales of $3.0 billion for the 2013 third quarter decreased by 8.7% compared to the 2012 third quarter.

L-3 Communication Holdings has recorded EPS and dividend growth, and considering its compelling valuation metrics, and the fact that the stock is in an uptrend, LLL stock can move higher. Furthermore, the rich dividend represents a nice income.


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Chart: finviz.com

Source: S&P 500 Best Value Dividend Stocks According To Portfolio123's Ranking