I was on the hunt for dividend stocks with a decent yield of at least 4%. Now there are a variety of methods to fundamentally analyze income stocks, but I wanted to see which of these income-earners had:
- Price to cash flow of 8 or less
- A decent analyst rating (moderate buy and above)
- A growth rate on dividend payouts
- Positive increase in revenue and earnings over the past 5 years
The premise is simple: stocks with a history of growth, decent relative cash flow ratings, increasing payouts, and analyst approval (better than hold). This might help determine sustainability of payouts.
Below is the list that came up:
- (NYSE:T) AT&T
- (STD) Banco Santander Central Hispano S.A. ADR
- (NYSE:CNP) Centerpoint Energy Inc.
- (NYSE:NGG) National Grid plc ADR
- (NYSE:PWE) Penn West Energy Trust
- (NYSE:PEG) Public Service Enterprise Group Inc.
- (NYSE:SCG) SCANA Corp.
- (NYSE:TEF) Telefonica SA
- (NYSE:TU) TELUS Corp.
- (NYSE:WR) Westar Energy Inc.
(T) AT&T – An interesting choice when looking at the charts. The rolling EPS has made a sizeable jump in 2010, even while trailing PE ratios dropped well below 10. The price has only seen a modest increase since the beginning of 2009. Growth is only expected to be between 5 – 6% over the next 5 years. Price to cash flow is just over 4 as reported by Bing Finance. The forward annual dividend yield is a generous 6.3%, and the payout ratio is only 50% giving them lots of breathing room. The big downside is that they are about to lose exclusivity on iPhones in the US, which will affect future earnings. Still, with low valuations this may still be a decent holding, even if only for the dividend.
(CNP) – CenterPoint Energy is a moderate buy from analysts. Low price to sales ratios of 0.75 make this attractive to some value stock pickers. But be careful. Price to cash flow does not tell the whole picture. They actually have a negative leveraged cash flow which means lots of loaning is going on. Earnings per share have faltered over the past few years as PE ratios climb slightly, and growth is slightly behind the bell curve as compared to its industry group. With this in mind and a 74% payout ratio, the risk may be acceptable for this 4.9% forward dividend yield stock.
These are just a couple of examples of the above stocks while keeping an eye on leveraged cash flow, payout ratios, and price to earnings ratios.
Same as Above but With Hold Ratings
The list of stocks below has the exact same criteria as above except that analyst ratings are a 'hold'.
- (AGL) AGL Resources
- (NYSE:AZN) AstraZeneca plc
- (NYSE:BCE) BCE Inc.
- (NYSE:BKH) Black Hills Corp.
- (NYSE:CIG) Companhia Energetica de Minas Gerais
- (NYSE:D) Dominion Resources Inc.
- (NYSE:DPL) DPL Inc.
- (NYSE:FE) Firstenergy Corp.
- (NYSE:PBI) Pitney Bowes Inc.
- (NYSE:PT) Portugal Telecom SGPS SA
- (NYSE:UVV) Universal Corp.
- (NYSE:VVC) Vectren Corp.
- (NYSE:XEL) Xcel Energy Inc.
Remember, that when analyzing dividend paying stocks, free cash flow is king and this is something in fairly short supply with these stocks even though they have good price to cash flow ratings. Do your homework on each of these stocks, but you may find more than a few that you wish to add to your long-term income building portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.