Everyone loves a good value. In search for one, it makes sense for most investors to be looking for high quality companies trading for a good price rather than mediocre companies trading at bargain prices. Companies on this list each face certain risks and are not necessarily recommendations, but they may not be a bad place to look for some solid dividend investments. So, without further delay, here are five high-quality names currently on the discount rack:
Chevron is the second largest oil company in the United States. Although the company experienced a decline in revenue and earnings in 2009 due to falling oil prices, the company remained profitable, continued to grow its dividend and assets, and now is in a period of recovery with an exceptionally strong balance sheet. The company managed to increase its shareholder equity by an average of 10% per year over the past five years, straight through the recession.
Through a combination of increased worldwide energy demand, core production growth, dividends, and share repurchases, Chevron may be poised to outperform over the long-term.
Dividend Yield: 3.40%
Trailing P/E: 10.0
Texas Instruments (TXN)
Texas Instruments is one of the country’s largest semiconductor companies. Although they’re quite well-known for their calculators, the company focuses on analog, embedded, and wireless products, and has a large market share in all of those categories. Texas Instruments benefits from increased usage of smart phones, and has an excellent balance sheet with a current ratio of 4 and zero debt. Unlike Intel which has been diversifying its business, Texas Instruments has been streamlining and focusing its business into the few primary segments listed above.
The company has high dividend growth, and recently announced a $7.5 billion share repurchase program which, at the current low valuation, is a better bargain than previous share repurchases. The company has been making small acquisitions within its areas of focus, and has increased its manufacturing ability during the market downturn.
Dividend Yield: 1.80%
Trailing P/E: 12.4
Novartis is a huge global health care company based in Switzerland. The company is incredibly diversified, offering a variety of pharmaceuticals, consumer health products, and animal health products. With a strong balance sheet and quickly growing revenue, the company appears to be in a position to offer great long-term returns. Due to their strong pipeline, the company’s valuation is a bit higher than many other health care companies, but lower than the market in general (and comparable to Johnson & Johnson (JNJ)).
Dividend Yield: 3.40%
Trailing P/E: 13.3
Exelon is the largest nuclear energy producer in the United States. With 17 nuclear reactors, Exelon produces energy for millions of people.
Unfortunately, Exelon also has some unfunded pension accounts, and is facing a likely future earnings decline due to low natural gas prices. Low natural gas prices mean that utilities that generate electricity via natural gas are very competitive with Exelon’s nuclear power, and therefore the company’s moat has been temporarily breached.
The low stock price seems to currently be factoring these things in. I wouldn’t look for the dividend to grow much, if at all, until Exelon can increase its earnings. The CEO, however, recently stated that maintaining the dividend is extremely important, and Exelon expects to maintain it even with gas prices staying low for quite a while.
Exelon recently agreed to acquire John Deere Renewables, paying $860 million for over 700 MW of wind power and additional wind power under development.
Dividend Yield: 5.10%
Trailing P/E: 10.4
Chubb Corporation (CB)
A leading multi-national property and casualty insurer, Chubb is exceedingly skillful and efficient in underwriting, achieving a combined ratio of 86%.
The company’s written premiums have been decreasing somewhat during this recession, but the company’s underwriting has been very profitable. The company has a policy of not sacrificing underwriting quality to chase premium growth. Shareholder returns will be largely driven by dividends and share repurchases, which at the current stock valuation are an excellent value.
Dividend Yield: 2.50%
Current P/E ratio: 8.6
Full Disclosure: I own shares of CVX, TXN, CB, and JNJ. I have no positions in EXC, NVS, or INTC. You can see my full list of individual holdings here.