5 Dividend Paying Stocks Worth a Closer Look

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 |  Includes: AMAT, INTC, KLAC, MSFT, XOM
by: NakedValue

We generated this list of stocks by filtering for large companies with low valuations, earnings growth, high returns on capital and at least a modest dividend yield. These characteristics are powerful investment traits. These companies do not necessarily have the market's highest dividend yields but we like them because of their overall appeal and safety. These companies each hold a strong brand value and a strong competitive edge in their respective industries. Investors would be wise to take a closer look at these companies.

Exxon Mobil Corporation (NYSE:XOM)

  • Trailing P/E: 11.56

  • Forward P/E: 8.95

  • Return on Assets: 10.37%

  • Dividend Yield: 2.9%

The global petroleum giant is the largest U.S. company by market capitalization. As of December 31, 2010, the company operated 30,494 wells throughout the world and 24,809 million oil equivalent barrels of proven reserves. Total liquids production has been generally stable over the last few years. In 2008, 2009 and 2010, the company's oil equivalent production averaged 4.447 million, 3.932 million and 3.921 million barrels daily. Year over year, the company's latest quarterly revenues increased from $90.25 billion to $114.00 billion. Along with an improvement in margins, this is what led to the company's sharp jump in quarterly earnings of $10.65 billion.

Exxon's 2010 acquisition of XTO Energy gave it exposure to desirable unconventional gas, oil shale properties and related research and development capabilities. Exxon is less exposed to the higher growth regions in Asia, but for investors that are bullish of energy prices, this blue chip stock would be worth a closer look.

The company trades at a price/book of 2.64 and a price/sales of 1.10.

Microsoft Corp (NASDAQ:MSFT)

  • Trailing P/E: 9.52

  • Forward P/E: 8.65

  • Return on Assets: 18.63%

  • Dividend Yield: 2.2%

Apple Inc. (NASDAQ:AAPL) may have overtaken Microsoft as the highest market capitalization technology company in the U.S., but Microsoft is still the most iconic brand. Despite Apple's amazing run, the market share of Apple's operating system still pales next to Microsoft. For all of the talk of the PC's impending doom, the Redmond, WA-based software giant's revenues still show a company that has a firm grip on its market position. Microsoft Windows and Microsoft Office still control a dominant share of the market. In addition, the company is more than just the Windows and Windows Live Division and Microsoft Business Division. In 2010, its Server and Tools segment generated $14.866 billion of sales, the Online segment generated $2.199 billion and Entertainment and Devices contributed $8.058 billion.

Microsoft's revenues have rebounded after a drop during the financial crisis. In fiscal year 2008, 2009 and 2010, the company had revenues of $60.42 billion, $58.437 billion and $62.484 billion. Between 2006 and 2010, the company's sales grew from $44.282 billion to $62.484 billion. This was extremely impressive considering that assets increased at a slower pace of around 23% during those five years. In the quarter ending March 31, 2011, revenues increased 13.2% to $16.428 billion.

Investors should not get too worked up by Microsoft's fall from the top of the technology world. Investors should remember that Apple's status as the new largest technology company is as much a testament to Apple's dramatic growth as it is about Microsoft's slowing growth. Also, investors should remember that Microsoft has returned around $45 billion to shareholders over the last three years in the form of share buybacks and cash dividends. This action is shareholder friendly, but at the cost of the market capitalization.

Based on current valuations, the software giant is very cheap. While the technology industry is fast changing, we think Microsoft is an attractive opportunity. Not only does it have a solid and stable business franchise through its Windows operating systems and Microsoft Office, the company also has growth opportunities through its gaming and online segments. In addition, Microsoft's partnership with Nokia Corp. (NYSE:NOK) to make Windows-based mobile devices is a low risk agreement with a lot of upside potential. Despite the popularity of Google Android O/S based phones and tablets, the open source platform still has a lot of rough edges and patent risks. This gives Microsoft a large window of opportunity to compete for meaningful market share in the mobile device market. Considering all of this upside, it is hard to believe that the company is trading near 52 week lows.

Intel Corp (NASDAQ:INTC)

  • Trailing P/E: 10.17

  • Forward P/E: 9.10

  • Return on Assets: 16.79%

  • Dividend Yield: 3.4%

Intel is the dominant global designer and manufacturer of microprocessors. There is no doubt that Intel is one of the most important companies of the computer age, but more recently investors have shunned the stock in part because fears of a decline in personal computers as well as Intel's notable absence from tablets, the fastest growing area in personal computer.

Revenues clearly leveled off since the earlier growth period. From 2006 to 2009, the company's revenues grew from $35.382 billion to $35.127 billion. But in 2010, the microprocessor manufacturer jumped to $43.623 billion. This increase was partially attributed to strong demand in the business and consumer PC markets as well as continued growth in the data center business.

Intel is highly exposed to customer concentration. In 2010, Hewlett-Packard (NYSE:HPQ) accounted for 21% of revenues and Dell Inc. (NASDAQ:DELL) contributed 17%.

With the stock already at such low valuations, despite attractive margins and a strong brand, the company is an interesting investing opportunity. If Intel can finally reach an agreement with Apple over its iPads, this could provide additional upside.

Applied Materials (NASDAQ:AMAT)

  • Trailing P/E: 10.75

  • Forward P/E: 9.13

  • Return on Assets: 14.85%

  • Dividend Yield: 2.6%

The company's revenues bounced sharply from the financial crisis lows. In fiscal year 2010, revenues nearly doubled to $9.55 billion. In addition, Applied Materials' sales are global. In 2010, 78% of sales were from Asia, 12% were from North America and 10% were from Europe.

But the real upside could come from the recent merger. The semiconductor company announced its acquisition of Varian Semiconductor (NASDAQ:VSEA) in May 2011. As such, the company's near term results may suffer as it integrates the new acquisition. But longer term, the acquisition will likely lead to new revenue synergies as well as cost cutting.

KLA-Tencor Corp (NASDAQ:KLAC)

  • Trailing P/E: 10.51

  • Forward P/E: 9.23

  • Return on Assets: 14.98%

  • Dividend Yield: 3.4%


The company has more than doubled its stock price from the March 2009 lows, but it still trades at very modest valuations despite attractive profit margins of 23.3%.

The valuations make this company well worth a closer look, but there are no obvious company specific catalysts. In addition, there are reasons for caution including increasing competition from players such as Applied Materials, as well as fears that the economy may be slowing and industry-wide spending has already peaked.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC, MSFT over the next 72 hours.