Fellow investors, there are 10 new dividend kings in town.
These aren’t your everyday dividend payers either. Aside from having solid yields in a broad range of industries, these stocks offer attractive growth prospect, economic moats and trade at discounts to their fair value.
So without delay, meet the new dividend kings for 2011…
American Express (AXP): This long time Buffett favorite yields 1.7%, and its share price has significantly appreciated since the overdone October selloff caused by a Justice Department’s lawsuit that asserted the company’s merchant contracts violate antitrust law. We believe AXP is one of the most attractive stocks in the financial sector as we outlined here, and in our opinion shares should be worth around $53 apiece. Shares trade at $43.53 at the time of writing.
France Telecom (FTE): France Telecom is the fixed-line and wireless giant of France, with significant interests in Spain, Poland and the Middle East and Africa. What makes this company attractive to income seekers is its hefty dividend yield of 5.8%. Another factor we like about this company is that the dividend only eats around 46% of the firm's free cash flow, making it likely in the near term the company will be able to maintain dividend payment. Shares trade at 22.49 at the time of writing.
Intel (INTC): Intel is the largest semiconductor and microprocessor manufacturer in the world. Though we believe shares are approaching fair value, the company announced on January 24th, it was adding $10 billion to its stock buyback plan and it would raise its quarterly dividend to 18.12 cents per share or 15%. Investors seeking entrance into the computer processor market would be well advised to buy shares of INTC below $18. At the time of writing, shares trade at $21.57.
Exelon (EXC): This dividend king is a utility holding company that provides electricity to 1.6 million customers in southeastern Pennsylvania and 3.8 million customers in Illinois. As well, it provides natural gas retail sales to half a million customers in Pennsylvania. With the largest nuclear fleet of any U.S. utility, Exelon’s 11 nuclear plants in the Midwest and Mid-Atlantic generate 17% of U.S. nuclear power and constitute 80% of Exelon’s generation output. Currently, Exelon trades at $43.14 and yields 4.9%. On a discounted cash flow basis, we believe shares are worth upwards of $70 a piece. Our full long thesis on EXC can be read here.
Senior Housing Property Trust (SNH): This company is essentially a landlord for senior citizens. More specifically, it’s a healthcare real estate investment trust (REIT) that owns over 320 senior living properties and medical office throughout the United States. Why is this a dividend king? Like many REITs, its yield is high: 6.7%. As well, it operates in an industry with a favorable demographic trend. And, in our opinion, shares currently trade a solid 20% discount to fair value. At the time of writing, shares change hands $22.19.
Rio Tinto PLC ADR (RIO): This global miner possesses an excellent low-cost asset base, extracting a variety of commodities including coal, gold, alumina, iron ore, copper, diamonds and other industrial minerals. This makes the company a good play on global commodity needs and high global commodity prices. Yield is currently only 1.20%, but we believe there is ample room for dividend growth as the world economy recovers, which will push natural resource prices higher.
Energy Transfer Equity (ETE): In our opinion, this Master Limited Partnerships (MLP) is the best bang for your buck as we outlined in detail here. This company has interests in both Regency Energy Partners G.P. and Energy Transfer Partners, which operate pipelines throughout the southwest, Louisiana, Arkansas, and Mississippi. ETE currently yields 5.50%. We value shares at $55 apiece on a discounted cash flow basis. Distributions should continue to grow in excess of 15% per year, and there is opportunity for an upside surprise in growth as operating leverage increases as natural gas prices firm up. Shares currently trade at 39.14 apiece.
Fidelity National Financial (FNF): Fidelity National provides title and specialty title insurance, claims management and information services throughout the United States. It currently holds the largest market share in the title insurance market, at 38%. It currently yields 5.30%. Shares are worth $22 apiece using a discounted cash-flow analysis. Title insurance premium growth will likely remain strong due to bursts of refinancing and foreclosure sales. Margins will benefit from Fidelity’s further use of cost-cutting technology, and should remain around 9-10% as a result. For more details on FNF, see our full article here.
Medtronic (MDT): Medtronic is the market leader in the medical equipment space, holding leading positions in insulin pumps, heart devices, and spinal products. Medtronic 2.3% yields and has a wide economic moat. At $38.67, the price at the time of writing, we believe there is limited downside risk in this equipment maker for investors seeking income and healthcare exposure.
Avon Products (AVP): Avon Products manufactures and markets beauty and related products worldwide in retail stores, online and through their iconic network of “Avon Ladies.” AVP currently yields 3.10% and, in our opinion, trades at a significant discount to fair value. Yesterday, the company announced it would up its dividend a penny, to 23 cents per share from 22 cents, which gave the stock a nice 1.62% boost. Plus, there’s the ever-present buy-out rumors, which will act as a catalyst for this stock even if they again turn out to be just rumors, as we discussed here. At the time of writing, AVP trades at 28.89.
Disclosure: I am long AVP, AXP, EXC, FNF.
Additional disclosure: I am short puts on ETE, FNF and short calls on EXC