Top 9 Dividend Prospects

by: New Low Observer

We began the year with a very strong market that also included a Dow Theory confirmation of the bullish trend and our watch list now contains 19 companies that are within 15% of their 52-week low. The complete list of companies can be found here.

January 14, 2011 Watch

Symbol Name Price % Yr Low P/E EPS (ttm) Dividend Yield Payout Ratio
ABT Abbott Labs 46.89 5.16% 15.48 3.03 1.76 3.75% 58%
CL Colgate-Palmolive 78.31 7.10% 18.30 4.28 2.12 2.71% 50%
CLX Clorox Co. 63.98 8.51% 13.76 4.65 2.20 3.44% 47%
LLY Eli Lilly & Co. 34.91 9.03% 8.01 4.36 1.96 5.61% 45%
KMB Kimberly-Clark 63.64 9.25% 14.40 4.42 2.64 4.15% 60%
CAG ConAgra Foods 23.11 9.94% 15.51 1.49 0.92 3.98% 62%
JNJ Johnson & Johnson 62.55 10.01% 12.84 4.87 2.16 3.45% 44%
UVV Universal 39 10.29% 7.66 5.09 1.92 4.92% 38%
NWN Nor'west Nat. Gas 45.71 11.35% 16.33 2.80 1.74 3.81% 62%

Watch List Summary

Some of these companies have been "stuck" on our list for quite some time. Clorox (NYSE:CLX) has been stuck in the $62 and $64 range for about 10 weeks. For six months Colgate (NYSE:CL) has spent most of its time trading between $80 and $75. According to Charles Dow, this biding of time by trading in a "line" creates values (article here) and may be the first sign of accumulation by institutional investors. Moreover, if the price remains constant while the underlying fundamentals improve (i.e. earnings, dividend, cash flow, book value etc.), the shares could be deemed screaming buys. Conservative and patience investors may want to start their research on these names.

Insurance names are of particular focus by our team currently. According to Yahoo!Finance, Allstate (NYSE:ALL) sports a price to book ratio (P/B) of 0.86 while Mercury General (NYSE:MCY) has a P/B of 1.27. We are actively buying up many insurance company stocks that have exceptionally low price to book ratios on a relative basis.

Northwest Natural Gas (NYSE:NWN) is again creeping toward its annual cycle of bottoming in February and March. Our October 3, 2009, article (located here) on this topic provides what we believe is extensive reseach on the pattern of cycle bottoms for NWN going as far back as 1970. As a follow-up, another article (located here) that we did on NWN provides technical insights on Edson Gould's Altimeter by comparing the stock price movement between 1995-1997 and 2000-2009. These elements may assist in your fundamental analysis of a great stock with a decent dividend yield.

Top Five Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from January 15, 2010, and have checked their performance one year later. The top five companies on that list can be seen in the table below.

Name Symbol 2010 Price 2011 Price % change
Shenandoah Telecom. SHEN 17.18 19.19 11.70%
First Financial Corp. THFF 28.97 33.12 14.33%
1st Source Corp. SRCE 15.14 19.88 31.31%
Exxon Mobil XOM 69.11 77.84 12.63%
California Water CWT 37.7 37.68 -0.05%

Average 13.98%

Dow Jones Industrial DJI 10,706.99 11,787.38 10.09%
S&P 500 SPX 1,147.72 1,293.24 12.68%

(Click chart to expand)

While our average return was greater than the market, only two companies, First Financial (NASDAQ:THFF) and Shenandoah (NASDAQ:SHEN), accomplished the 10% benchmark in less than six months. It's also interesting to note that while ExxonMobil (NYSE:XOM) underperformed the market for the majority of the year, it managed to track the market at the end of the one year mark. Taking the dividend into consideration, Exxon may have outperformed the market by about one percent.


On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. We suggest that readers use the March 2009 low (or the companies' most distressed level in the last 2 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. A minimum of 50% decline or the November 2008 to March 2009 low, whichever is lower, would fit that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.

Disclosure: I am long CAG, LLY.