In this time of volatility, many investors are looking for companies that put out great dividends. At the same time, many of the stocks that offer the highest dividend yields are fly-by-night companies that may have to reduce their dividends in order to remain in business. With this in mind, we’ve found five stocks that offer a dividend yield of over 5% and have over $100B in market capitalization.
AT&T Inc. (T) has traded between 27 and 32 for quite some time now. The most recent news affecting this company has been the FCC’s announcement that it will consider its acquisition of T-Mobile USA at the same time it considers its acquisition of Qualcomm’s (QCOM) 700 MHz spectrum. AT&T shareholders were hoping this wouldn’t happen because it will probably delay the completion of both deals. Regardless, T stock remains attractive for its dividend yield of 5.9% and P/E of 8.33. Note that rival Verizon (VZ) is currently trading for 15.19 times earnings. In fact, Verizon may be in for trouble due to a strike on the part of some of its workers. While this won’t affect the company’s wireless business, Verizon’s ability to maintain access lines in some areas will be greatly diminished if the strike continues. Other news in the telecom industry has centered on AT&T’s announcement that it will upgrade its networks in Alabama. This is part of AT&T’s plan to nationally invest $20 billion, and we believe that the Deep South is one region that would benefit greatly from such a move. Additionally, we are impressed with last quarter’s cash inflow of over $2.4 billion and believe that increased sales of U-Verse will help contribute to more positive cash flows in the future.
One of the largest pharmaceuticals in the world, GlaxoSmithKline (GSK) has traded between 36 and 45 in recent months. While technical analysis reveals that the stock may still have some downside, shareholders are excited about the company’s recent application to the FDA that would allow Horizant to be used in postherpetic neuralgia. Additionally, GSK’s recent earnings report shows that the company has experienced growth from a number of sources including the consumer, pharmaceutical, and vaccine divisions. While business in the U.S. and Europe has gone a bit sideways, GlaxoSmithKline’s success in the emerging markets as well as Japan should not be ignored. In fact, products like Sensodyne, Panadol, Lucozade, and Horlicks have done particularly well globally. U.S. products that are seeing better than expected success include Votrient, Ventolin, Levitra, Entereg, and Lamictal. In addition, GlaxoSmithKline has talked about its focus on four financial factors: Sales growth, operating leverage, financial efficiency, and cash flow growth. In today’s economy, we agree that these will be important for creating strong EPS and FCF in the future. Specifically, the company has explained that it will try to be more prudent with R&D spending. GSK also offers a very attractive PEG of 0.68. Note that competitors Novartis (NVS), Pfizer (PFE), and Sanofi-Aventis (SNY) are all higher at 2.11, 2.17, and 31.65 respectively.
Royal Dutch Shell plc (RDS.B) is back to trading where it was about nine months ago, although at least one firm is upgrading an outlook on RDS.A, with Oppenheimer changing the stock’s rating to Outperform. Notably, analyst Fadel Gheit believes that future cash flows should be strong, which will allow for more investment, better dividend, or buying back of shares. Needless to say, shareholders would be happy with any of these outcomes, and Gheit believes the stock’s target price is $80. In fact, past cash flows have also been very impressive for Royal Dutch Shell. The company has already taken in over $6 billion since the beginning of 2011. RDS.A is also trading quite cheaply at the moment at a price of 7.13 times earnings. Note that competitors Chevron (CVX) and Exxon Mobil (XOM) are higher, with P/Es of 8.16 and 9.44 respectively. As discussed in this article, the business of Big Oil is changing, and we believe that Royal Dutch Shell is well positioned for the future. In fact, it's reduced refinery capacity by 40%, which should keep the company running efficiently. Additionally, another good review of oil stocks can be found here, which makes the important point that natural gas may be a source of increased profitability for companies like Shell.
Total SA (TOT) and Shell have actually moved in near lockstep over the past year, but Shell has remained higher nearly the entire time. As explained in another Seeking Alpha article, there are some great reasons to buy Total right now. Valuation indicators such as P/B, P/S, and P/CF are all very attractive. These numbers are 1.18, 0.47, and 1.70 respectively. Technical analysis for the stock also has it due for an upswing, and analyst estimates have the stock going to the mid-60s. One concern to be had is the company’s PEG of 2.15. This is significantly higher than competitors like BP and Exxon Mobil, whose PEGs are 1.16 and 1.31. Free cash flow margin isn’t great either, as ConocoPhilllips (COP) performed much better in this regard. The declining price for this commodity has been one reason for the stock’s recent negativity, and look for the price of oil to play a big role in Total’s future performance. Also impacting this industry is the realization amongst many that Brazil represents the next big place to drill. For those interested in gaining exposure to this, Petrobas (PBR) may be a better choice. Although Total hasn’t been in the news much lately, one headline that did catch the eye of shareholders was that the company’s Elgin operation will be shut down temporarily for maintenance.
Vodafone Group plc (VOD) has been relatively stable despite the market’s recent volatility. This can probably be attributed to the company’s diverse operations and, as explained here, there are some great reasons to like this stock. The company is no longer looking to expand to China, but growth in other areas such as Eastern Europe and the rest of Asia should certainly have shareholders excited. Additionally, UBS upgraded the stock to a buy recently, and many technical indicators have the stock going up. Vodafone also compares favorably to another big player in the European telecom industry, Deutsche Telekom (OTCQX:DTEGY). Note that VOD’s P/E is nearly a third of DTEGY.PK’s, 10.71 compared to 29.59. Vodaphone’s cash flows are also quite impressive, with the company taking in $1.842 billion for the 12 months ending March 31. Other articles discussing Vodafone can be found here and here, both focusing on the company’s exceptionally strong dividends. Also note that while Vodafone owns 45% of Verizon Wireless, the Verizon strike discussed above will not affect Vodafone since that was solely in its landline unit. In fact, this 45% stake will give VOD a $4.5 billion dividend, some of which is going to a special dividend for VOD shareholders while the rest is used to pay down debt. We believe that this is the perfect way to spend the cash, as it will further strengthen the company’s financial position.