13 Dividend Warriors Fighting for Higher Yields

|
 |  Includes: C, CL, CLX, DD, GE, HIG, IBM, JPM, KO, PEP, PG, SYK, VAL
by: Investment Underground

Some companies can survive for decades, others can survive for centuries. The latter are dividend warriors: Those with operating history, strong brands and the ultimate ability to go round after round through all seasons and recessions. All while fighting for dividend payments for investors. Here are a few warriors fighting for your retirement income.

Procter & Gamble (PG): A powerhouse on the “dividend champion” scene that's increased its payouts for 54 straight years. The 3.1% current yield is reasonable, but might get even better in the next month. PG looks to mirror IBM with an expected 10% increase to yield on cost. The 53% payout ratio appears to be in line for this consistent consumer goods company. A near 12% average five-year dividend growth rate, coupled with the expected upcoming dividend increase announcement, make PG a play that everyone can see.

P&G was formed in 1837, when the company's name sake "son-in-laws" joined their candle and soap businesses. We expect P&G to continue growing over the next two centuries, with emerging market growth being a bright spot.

Coca-Cola Company (KO): Coca-Cola Company is the world leader in manufacturing and distributing carbonated and non-carbonated beverages. They sell a wide range of beverages from water and flavored water to juices and energy drinks. KO sell mainly to distributors who then sell to the consumer. They also sell concentrates and syrups to fountain drink wholesalers. Coca-Cola has a market cap of $152.06 billion. Coca-Cola announced a first quarter 2011 quarterly payout of $0.47. This is a 6.8% jump from last year’s quarterly dividend of $0.44. The $0.47 quarterly distribution makes for an annual dividend yield of 2.8%. KO has a payout ratio of 34%. I think that the brand name of Coca-Cola provides a huge competitor advantage and makes the barriers for others huge. Coca-Cola has $12B in cash and $26B in debt. Operating cash flow over the trailing twelve months came in at $8.6B, so we think there is plenty of room for continued dividend increases.

At current prices, we think KO represents a slightly better buy than Pepsi (PEP) due to sales abroad. Among foreign markets, we think India represents KO's best opportunity for growth. In 2010, KO grew India sales by approximately 20%. Founded in 1886 by famed Doctor John Pemberton, KO has significant growth ahead of it. Worldwide sales should be substantial from BRIC countries going forward.

General Electric (GE): This dividend warrior doesn’t need much introduction, but here it is anyway: Based in Fairfield, Connecticut, this technology / media / energy conglomerate has products in planes, trains and microwaves, not to mention the staples of everyday life such as water, gas, light, appliances and software. GE was founded with the merger of Thomas Houston Co. and Edison General Electric, in 1892. Four years later it joined the Down Jones Industrials (NYSEARCA:DIA).

GE had a long and stable history of paying dividends for over 25 years, but you won’t see this “symbol of American business,” as Warren Buffett calls it, on any dividend aristocrat or champion list. In February of 2009, GE announced a severe quarterly dividend cut from $0.31 to $0.10, citing a precautionary move to insure liquidity. Today the company has ramped its dividend back up; and shares now yield 3.3%.

Combine the recovering economic times with the 39.61% payout ratio and GE is starting to paint a more acceptable picture. The 1.66 beta might seem a bit high for such a well-established company, but we still see this stable name as a long term buy. We recommend interested investors take a look at shares at this level or employ a put-selling strategy to acquire shares.

JP Morgan (JPM) While generally well run under the stewardship of Jamie Dimon, JP Morgan has significant exposure to PIIGS debt. According to a research note last year from Matthew Burnell, an analyst with Wells Fargo, JP Morgan has around $36 billion in exposure to Europe's beleaguered PIIGS countries at risk of foreign debt default.

JPM quickly took advantage of allowable dividend increases by bumping its quarterly mark up to $0.25 from $0.05. This actually isn’t that far off from the pre-recession $0.38 quarterly payout. Add in the 9.3% payout ratio and the future outlook for this financial powerhouse appears to be promising. The 2.45% current yield isn’t that attractive, but then again, the $8 billion common share buyback should be factored into the shareholder's equation since it should put a floor on the price. Some might not be keen on the near 50% increase in CEO Jamie Dimon’s compensation during 2010 -- but to be fair, his year-to-year base salary did not change, just his stock option incentives.

Valspar (VAL): Valspar is the maker and seller of various types of paints and coatings. They operate mainly in the United States, as well as China and Europe. Valspar paints and coatings can be seen almost everywhere. They cover your household appliances, they stain your wood table at home, they coat your beverage can, and they can even be seen on automobiles. Valspar products can be seen in a wide range of things, but VAL is still relatively small. It has a market cap at $3.56 billion, compared to competitors like PPG Industries (PPG)and The Sherwin-Williams Company (SHW), which have market caps of $13.59 billion and $8.92 billion, respectively.

VAL has also been consistently increasing dividends and has a quarterly dividend of $0.18. Valspar recently released second quarter 2011 results. Profits were down 9% despite the 23.5% jump in sales. CEO William Mansfield said that high raw material costs have really been hurting margins. He also added that through acquisitions, new business lines, and strategic pricing they have had successful double-digit growth in the top line. The results were fairly similar to analysts’ projections. I think VAL has room to grow and its brand name is gaining value. I think we will continue to see its dividends rise and yields go up.

Valspar was founded in 1806, and we think its best years are still ahead of it.

E.I. du Pont (DD) Founded in 1802, Dupont trades with a P/E of 14.05, P/B of 4.3, and P/S of 1.38. The industry averages are 19.9, 1.3, and 0.4, respectively.

In 2010, EPS was $3.28, which was an increase of 70.83%, after falling by 12.73% in 2009. According to the company, it raised its guidance from a range of $3.30 to $3.60 per share to a new range of $3.45 to $3.75 per share. This excludes the impact of the planned Danisco acquisition, which could reduce 2011 earnings by $0.30 to $0.45 per share on a reported basis.

The driver for the increase in guidance is a lower effective tax rate, driven by increased earnings in lower-tax jurisdictions outside the U.S., and reduced non-cash pension expense. We think DD represents a solid long-term buy.

Stryker Corp. (SYK): SYK designs and produces medical devices that are used mostly in orthopedic surgeries. The company is broken down into two segments. The first is Orthopedic Implants and provides reconstructive, trauma, and spinal implant systems. The second segment, MedSurg Equipment, produces and sells surgery equipment. This equipment consists of surgical navigation systems, endoscopes, digital imaging systems, patient handling equipment, and more.

This is only the second year that Stryker has given quarterly dividends. In 2010, Stryker moved away from annual cash dividends to quarterly cash dividends. The current forward annual dividend yield is 1.22%. SYK has a payout ratio of 20.6%. It also has a little less than $1.5 billion in operating cash flow. We think Stryker has cemented itself within the industry and is a leader in innovation and will see growth because of it. The company has also been raising dividends every year for 20 years and we think it will maintain this reputation moving forward. We still think Stryker offers a better bet than Zimmer (ZMH) due to Stryker's growth prospects.

Founded as the Orthopedic Frame Company by Dr. Stryker in 1941, SYK has the most promising dividend growth prospects on this list.

Clorox Company (CLX): The Clorox Company makes consumer products in 4 main segments. The first segment, cleaning, produces cleaning supplies under brand names such as Clorox, Formula 409, Liquid-Plumr, Pine-Sol, Tilex, Armor All, and more. As you can imagine, the products are all cleaners for everything from car tires to hardwood floors. The lifestyle segment offers products that have to do with food and beverage. Through brands such as Hidden Valley, Brita, Burts Bees, and KC Masterpiece, CLX provides food products, water filtration systems, and personal care items.

The household segment is in charge of brand names such as Kingsford, Scoop Away, Match Light, Fresh Step, and Glad. The household segment produces cat litter, trash bags, charcoal, and other household items. Through the company's last segment, international, the company markets a combination of the three other segments to international markets under various brand names.

With a quarterly dividend of $0.60, CLX has a dividend yield of about 3.58%. Clorox is still a relatively small consumer goods producer compared to some of the leaders. It has a market cap of $8.9 billion while competitors like Colgate-Palmolive (CL) stands at about $41.60 billion and Procter & Gamble (PG) stands at about $185.29 billion. Despite this, CLX is finding growth in international markets and we believe has strong brand names and a few emerging names that are gaining traction. With a payout ratio of 54%, we think investors will find some great dividend yield in CLX. We've identified CLX as one of the best dividend-paying stocks in the S&P 500 (SPY).

Colgate-Palmolive Company (CL):
Colgate-Palmolive is a leader in consumer products. They are most recognized for their oral care products, such as toothbrushes, mouth wash, dental floss, and toothpastes. They also produce a whole range of personal care products like shampoo, body wash, hand soap, deodorants, and antiperspirant. They also make pet nutrition products. They operate many high profile brand names like Colgate, Palmolive, Speed Stick, Ajax, Science Diet, and Irish Springs.

Colgate have a strong international presence and produce over 60% of sales from outside of the U.S. They have a quarterly dividend of $0.58 and an annual dividend yield of 2.7%. CL have a 44% payout ratio. The strong brand names and diversified presence of CL make the stock a buy. They will continue to operate without too much competitor pressure and will continue to make value to shareholders through payouts.

PepsiCo Inc. (PEP):
PepsiCo Inc. is also a leader in the beverage manufacturing, but also has a large presence in the snack foods industry. They own and market through brand names such as Gatorade, Tropicana, Quaker, Frito-Lay, Tostitos, Sun Chips, Aunt Jemima, and obviously Pepsi.

PEP announced a quarterly dividend hike from $0.48 to $0.515. This makes for a 7.2% jump. Recently, it has been a tradition for PepsiCo to raise dividends in Q3 and not in Q1, like many of the previously reviewed companies. PEP is currently yielding 2.9% annually. In the past five years, the quarterly dividend has increased 71.6% from $0.30 in 2006 to $0.515 today. We think PepsiCo has a large competitive advantage both in the beverage space and the snack food industry. PEP is a buy. A payout ratio of 51% and $8.59 billion in operating cash flow, lead me to believe that they will continue to hike payouts and flourish as a company.

The Hartford Financial Services Group Inc. (HIG):
Hartford, founded in 1810, offers a wide range of financial and insurance products in the United States and internationally. In the company’s property and casualty segment, it offers workers compensation, marine, livestock, liability, umbrella, automobile and property insurance. Hartford offers employers, associations, group retiree health products and services, through its Group Benefits segment. It also sells life insurance and offers retail mutual funds, investment-only mutual funds, and college savings plans. HIG is currently trading in the low 20s and has a market cap of $10.6 billion.

Hartford has a price to earnings ratio of 7.5 and a net margin of 8.2%. Hartford saw a slight decrease in revenue from 1Q 2011 to 1Q 2010. In 1Q 2010, revenue was $6.319 billion and in 1Q 2011, revenue came in at $6.308 billion. This did not stop net income jumping from $319 million to $511 million. HIG has a strong cash position with $5.20 billion in levered free cash flow. Hartford also announced that it will sell a small Florida bank, which it bought to qualify for TARP, in accordance with new regulation under the Dodd-Frank bill.

Citigroup (
C)
Citigroup suffered drops in share value of over 20% since its high in late January. Citigroup is hovering at a level slightly below its book value currently. Currently selling at $38.30, Citigroup should probably be valued somewhere in the mid-$40 range. With a P/E of 12.35, and earnings per share of 3.06 Citigroup definitely has room to grow in value. In terms of management effectiveness, Citigroup is below industry averages when it comes to net profit margin and return on assets.

By itself, Citigroup is a worthwhile stock to consider based on its projected book value and token dividend. It has been recovering since announcing a 10-to-1 reverse stock split in March, a move that likely opened Citigroup up to more institutional buyers.

Chartered as the City Bank of New York in 1812, we think Citigroup will endure despite the rough patches it has encountered in the last decade.

IBM (IBM)
IBM is a comparative child, having just turned 100 years old. IBM is an appropriately-named leader in the technology industry. IBM is involved in many segments and has many business divisions. It provides IT consulting through its Global Business Services segment. It creates software that helps companies manage warehouses, secure data, provide analytics, gauge forecasts, and automate datacenters. IBM has a Global Financing segment that provides loans and leases to the technology industry. IBM is t
ruly a global powerhouse.

IBM has a market cap of around $200 billion, which is on par with competitor Microsoft (MSFT) and much higher than most other competitors. It is trading around $166 and has a P/E of 13.9. The annual dividend is $3.00 and that produces an annual dividend yield of 1.82%. IBM has such a competitive advantage over so many of its competitors that we think it will continue to be profitable for quite a while into the future. The company has paid a quarterly dividend since 1916. IBM CEO and chairman Samuel Palmisano said, “Since 2003, we have returned over $100 billion to shareholders in the form of dividends and share repurchases," adding, "Our commitment to delivering value to our shareholders remains as important today as it has ever been."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.