Market Plunge: Stable and Generous Fixed Income for Bargain Prices

 |  Includes: AZN, MO, VZ
by: Larry Meyers

The market turmoil has created some great bargains in the market. For those more concerned with regular, stable, and generous fixed income, these three stocks are now on sale. They are all solid companies that have upside potential in addition to their generous dividend. Their dividends also provide a small hedge against the downside.

One good place to seek out dividends is in mature pharmaceutical companies. These entities have long enjoyed the fruits of their R&D departments, and have drugs that provide lots of annual revenue. AstraZeneca PLC (NYSE:AZN) is a powerhouse of free cash flow, which is exactly what you want to find in a stable dividend payer. During 2008, the company generated $7.7 billion in free cash flow, almost three times the amount needed to cover its dividend payout. In 2009, things got even better: $10.8 billion in free cash flow. 2010 kept the pattern -- $10 billion in free cash flow. The company even boosted its dividend, keeping its FCF at three times dividend coverage. AstraZeneca has a solid balance sheet. Its $9.4 billion in debt could be paid off with a single year’s FCF, and it has $12 billion in cash on top of that. With the stock trading 23% off its 52-week high, it offers decent capital appreciation to augment its 4.1% dividend yield.

You aren’t going to do much better than tobacco stocks for solid dividends. Altria Group (NYSE:MO) is the single best domestic name in the group. It is Philip Morris’ domestic tobacco business. Once again, we have a company generating well over $3 billion annually in FCF. Even better, we all know tobacco is an addictive product. It never seems to phase smokers that cigarette taxes always are the first tax to get raised by a state to raise money. That alone should tell you cigarettes aren’t going away. The market has taken Altria down 13% from its highs, and its yield is as safe as stone at 6.2%.

I am not a fan of telecom stocks for capital appreciation. That business has become a commodity. However, if a safe and generous yield is what you want, it’s hard to argue with Verizon Communications (NYSE:VZ). While the company battles it out with competitors like Sprint (NYSE:S) and AT&T (NYSE:T), its business is so huge it has thrown off over $15 billion in FCF annually the past two years, and $9 billion in 2008. This is despite net income getting hammered. However, the simple truth is that its 5.9% yield is generous and solid. Like AstraZeneca, its FCF flow is three times its dividend payout.

These are just three fixed income dynamos for your portfolio. There are other places to find solid dividends, and I’ll tackle those in another article.

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