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As an income investor, I am looking for stocks with high dividends. As a growth investor, I am also seeking for stocks with low PE/G, a ratio used to determine a stock's value while taking into account earnings growth. Is there any stock that has both growth and high yield characters?
22 High Dividend Stocks within S&P 500
Below are 22 stocks from S&P 500 with dividends greater than 3% and PE/G less than 1.5. Many of them are also in the S&P 500 Dividend Aristocrats list, which consists of large-cap, blue-chip companies within the S&P 500 that have increased dividends every year for at least 25 consecutive years.
Name (Symbol)
Yield
PEG Ratio
Abbott Laboratories (ABT)
3.9%
1.1
Avon Products, Inc. (AVP)
3.1%
1.5
Chevron (CVX)
3.0%
0.5
ConocoPhillips (COP)
3.1%
0.6
E.I. du Pont de Nemours (DD)
3.2%
1.0
Intel (INTC)
3.4%
0.9
Kimberly-ClarkComm (KMB)
4.3%
1.4
Leggett & Platt (LEG)
4.7%
1.1
Lockheed MartinCom (LMT)
3.7%
1.4
Marsh & McLennan (MMC)
3.0%
1.5
McDonald's (MCD)
3.3%
1.4
Microchip Technology (MCHP)
3.7%
1.1
Nucor (NUE)
3.1%
1.3
NYSE Euronext (NYX)
3.7%
1.5
Pitney Bowes Inc. (PBI)
6.0%
1.3
ProLogis (PLD)
3.0%
1.4
R.R. Donnelley & Sons (RRD)
5.7%
1.0
Raytheon Company (RTN)
3.0%
1.3
SuperValu Inc. (SVU)
4.8%
1.4
Sysco (SYY)
3.6%
1.5
VF (VFC)
3.0%
1.3
Vornado Realty Trust (VNO)
3.1%
1.3
Five Rules to Further Filter
In addition to yields and PE/G ratios, I use the following five criteria to further filter my picks. These rules are not bullet-proof; therefore, investors should adjust them accordingly.
1. Payout Ratio
The lower the better. If a company pays out more than it earns, its dividend is not sustainable. R.R. Donnelley & Sons' (RRD) payout ratio is 193%, and Leggett & Platt’s (LEG) is 90%. These two companies are eliminated from my list.
2. Short Ratio
This ratio is derived by dividing the short interest by the average daily volume for a stock. It is used to identify the prevailing sentiment the market has for a specific stock. Microchip Technology and Pitney Bowes have the highest short ratio in this list.
3. Potential One-Year Gain
This is based on the current price vs. 1-year analysts’ target price. ConocoPhillips, Lockheed MartinCom, Marsh & McLennan, Nucor, ProLogis and Vornado Realty Trust all exceed or are near their 1-year target prices; thus, there might not be too much room to appreciate.
4. 200-Day Moving Average
The 200-Day MA is one of the top trading indicators. The average gain of the market is far greater when prices have been above the 200-day MA than when it has been below it. Currently Abbott Laboratories, Avon Products, McDonald's and SuperValu are below 200 MA.
5. Increased Dividend Yield
Dividend companies need to grow their dividend yields. The following three stocks' dividend yields are less than their past 5-year-average dividend yields: Chevron, E.I. du Pont de Nemours and VF.
Four Stocks Left for Further Analysis
After applying the above criteria, there are four stocks left: Kimberly-ClarkComm, Intel, Raytheon Company and Sysco. Intel was mentioned in my previous article.
1. Kimberly-ClarkComm
KMB engages in the manufacture and marketing of various healthcare products worldwide. Following is the direct competitor comparison from Yahoo Finance. As you can see, KMB’s margin is way below industry giant Procter & Gamble (PG):
Metrics
KMB
Energizer Holdings (ENR)
PG
Qtrly Rev Growth
1.9%
-1.8%
1.5%
Gross Margin (ttm)
33.3%
47.5%
51.3%
Operating Margin
14.6%
16.4%
19.7%
P/E (ttm)
14.6
11.7
17.2
PEG (5-yr expected):
1.4
1.1
1.8
2. Raytheon
Defense firm Raytheon just reported fourth-quarter profits that declined about 1 percent as the U.S. government reduced overall defense spending. Its share price will unlikely rise significantly in the near term. However, geopolitical risks might make it a good bet if tensions rise in areas such as the Middle East.
3. Sysco
In the most recent quarter, the nation’s leading restaurant supplier’s net income dropped 8 percent, hurt in part by higher pension costs and a lower gross profit margin. The food service industry will feel the pressure of input cost increases in the near future. Nevertheless, with its sustainable competitive advantage, Sysco might be able to weather the food-inflation storm and pass some of the increased cost to its customers.
Conclusion
On the whole, the stock market is a much safer place for individuals than the bond market, because the bond market is generally rigged against individual investors, according to Michael Lewis, author of The Big Short.
Dividend investing is still one of the valid strategies. Investors can pick solid dividend-paid stocks based on their own preferences. There is less risk involved in dividend stocks. Not only will you get better returns in the long run, your portfolio will be less volatile.
Disclosure: I am long INTC, SYY.
Source: 22 High-Yield Large-Cap Stocks With PE/G Ratio Less Than 1.5