By Larry Gellar
As seen in this list, many companies do not charge fees to enroll in their dividend reinvestment plan. This is extremely useful because otherwise the transaction costs can greatly add up. Let’s take a look at six stocks from this list that are ripe for DRIPing.
3M Co. (MMM) – This company was trading at 52-week highs in July, but since then the stock has crashed due to Wall Street’s mass exodus. It has a yield of 2.7%. Regardless, 3M is attractive for a variety of reasons. As discussed here, 3M offers a good dividend yield without sacrificing too much of its earnings per share. Analysts currently have the stock targeted to break $100, and the company has strong profitability along with a low level of debt. These factors are clearly a recipe for success. Additionally, 3M also offers a low PEG compared to other conglomerates like Avery Dennison (AVY), DuPont (DD) and Johnson & Johnson (JNJ). Note that 3M’s PEG is only 0.97, while those other competitors’ PEGs are 1.61, 1.15 and 2.23, respectively. While a weak U.S. economy will certainly hurt 3M in the future, we believe that the company is well positioned to take advantage of growth in emerging markets. More info about the company can be found here, and this article makes the important point that although 3M has had some weakness due to the catastrophe in Japan, this is only a temporary issue. If anything, the company may stand to benefit as the country tries to rebuild. Additionally, some shareholders have been concerned about CEO Buckley’s plans to sell some 3M stock, but this is merely an effort on his part to diversify.
Exxon Mobil Corporation (XOM) – Exxon Mobil has seen steady increases over the past year, and hasn’t declined that much in the recent bear market. Shares yield 2.5%. Exxon Mobil may actually become a popular place for bondholders due to S&P’s downgrade of the U.S.’s credit rating, and this would actually benefit the company by allowing it to borrow at lower rates. Surprisingly, Exxon Mobil has seen negative cash flows in three of the past four quarters, but this is easily overlooked since oil companies frequently need to make large expenditures. Also, while the company’s P/E ratio is a bit higher than competitors like BP (BP) and Chevron (CVX), this is not a tremendous problem considering Exxon Mobil’s future growth prospects. In fact, one part of these future growth prospects is Exxon Mobil’s plans to build a pipeline from the Alaskan North Slope to Canada. This will be coming under the scrutiny of the Federal Energy Regulatory Commission, but we believe that the pipeline will win the OK. Other recent news that will affect XOM is the dramatic drop in the price of oil, but this should not cut into Exxon Mobil’s profits by a significant amount. In fact, the oil industry as a whole should not be overly affected by economic concerns, and XOM’s beta of 0.43 should certainly be seen as attractive by defensive investors.
Procter & Gamble Co. (PG) – Procter & Gamble has been more volatile than usual for about 10 months now, but the stock is now trading at a support level. In fact, Procter & Gamble topped The Wall Street Journal’s “selling on strength “ list for Friday, found here. Additionally, P&G just released its earnings report, which contained both strong past performance as well as hope for the future. While management did lower expectations for next quarter due to the U.S. economy, plans to expand into emerging markets certainly seemed well thought out. P&G is also planning accordingly for its U.S. operations by cutting costs as well as reworking products that need to be made cheaper to sustain demand. In addition, P&G has had success raising some of its prices to balance out increasing production costs. More info on that can be found here. Competition for P&G comes in the form of Johnson & Johnson (JNJ) and Kimberly-Clark (KMB), and P&G offers better price for growth than these companies with its PEG of 1.55. We are also a fan of Procter & Gamble’s balance sheet, with its reasonable debt-to-equity ratio as well as its solid book value per share. Cash per share could be a bit higher, but this is quite insignificant. Shares yield 3.5%.
Duke Energy Corporation (DUK) – This stock has seen ups and downs over the past year, and the company is now trading at a level of support. As discussed here, this stock is ripe for a rebound and notable for its improving profitability. Additionally, with its beta of 0.36 and dividend yield of 5.5%, this is a wise stock to hold in the current economy. Next to competitors like American Electric (AEP) and Progress Energy (PGN), Duke compares favorably with its low P/E ratio of 11.78. Statistics like operating margin and gross margin are also working in Duke’s favor. Additionally, the company reported earnings recently, and those were received with great acclaim. As explained here, Duke’s diluted earnings per share were up compared to a year ago. In fact, in Q2 2010, it was -$.17 while for this past quarter it was a gain of $.33. Another thing that put Duke in the headlines is the company’s request to South Carolina to allow an increase in prices. While homeowners are certainly in an uproar about this, we believe that the change will win approval, and DUK stock will benefit accordingly. Finally, it is worth mentioning that Duke’s statement of cash flow hasn’t been perfect lately, but we still feel that cash per share is healthy enough at 1.02. Shares yield 5.5%.
The Dow Chemical Company (DOW) – Dow Chemical had been doing nicely over the past year, although the stock has taken quite a beating recently. One headline that should be received favorably by shareholders is news that Dow will be creating a wrap for the 2012 Olympics. While Dow will not be able to have its logo on the material during the actual games, there will be plenty of other opportunities for the company to advertise its presence. If nothing else, it is proof of the company’s leadership in the chemistry industry. The company’s price to sales ratio is currently an attractive 0.62, and we believe that this is important because chemical companies have already cut costs immensely. In other words, sales will be the driving factor in future earnings, and other companies’ P/S are somewhat higher. Note that DuPont’s (DD) P/S is currently 1.25 and BASF’s (OTCQX:BASFY) is currently 0.71. Although Dow did see a whopping $3.477 billion cash outflow in the quarter ending March 31, we are not overly concerned. This is primarily because the outflow was preceded by three quarters of positive cash flow which more than make up for it. Additionally, our technical analysis reveals that the company is trading at a level of support. Shares yield 3.3%.
HJ Heinz Co. (HNZ) – The famous ketchup maker had a great spring but has dropped off a bit since then. While Heinz will certainly be a victim of rising input costs, we are confident in the company’s ability to overcome this and maintain strong profitability. As discussed here, Heinz is certainly gaining momentum with investors. Particularly impressive is the company’s PEG of 1.96. This compares favorably against Campbell Soup (CPB), ConAgra (CAG) and Nestle (OTCPK:NSRGY), which have PEGs of 2.83, 2.11 and 3.52, respectively. There have also been rumors of a Heinz buyout, which would clearly send the stock soaring. Potential buyers could be Unilever (UL) or Kraft (KFT), although we readily admit that neither company may have enough cash reserves to seriously consider such a move. Speaking of cash, HNZ has been quite positive in this regard, posting cash inflows for three of the past four quarters. In fact, this strong performance should continue even in a weak economy due to the basic nature of Heinz’s main products. If there is one thing we don’t like about the stock it is its relatively low revenue from emerging markets. Specific details about that can be found here. Regardless, that same chart does show the nice dividends that can be collected from Heinz. The shares yield 3.8%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.