This past week was one of the most volatile in the market's history. The Dow Jones Industrial Average (DIA) had four consecutive days of 400+ point swings for the first time in its history. With this unpredictable nature in mind, I will be taking a look at some large-cap dividend stocks with market caps greater than 100 billion. I am fond of dividend stocks because of their propensity to generally outperform the market, while performing even better during bear markets. With the Fed being committed to holding interest rates at 0% for the next two years at least, investors need to look for solid yields where we can get them. With the world economies teetering on the verge of another recession, taking a look at solid income producers is a fantastic idea. Also the S&P 500 (SPY) is testing its lows for the year and its P/E ratio is at 12.1% as of week's end (lowest levels since 1989). I think this is a perfect time to add these valuable companies at cheap prices. Any of these companies would make a valuable addition to any income portfolio.
AT&T (T): It is a worldwide provider of telecommunications services. The first thing we notice when analyzing AT&T is the 6.09% dividend yield. That is good enough to place first place among all 30 companies in the Dow Jones Industrial Average. T is the picture of consistency as it has increased the dividend for the past 28 years. The debate on AT&T breaks down into the people who have the service and hate it and those who look at the fundamentals of the stock and realize its value. AT&T has a five- year revenue growth rate of 23.21%, an EPS of $3.30, and a P/E ratio of 8.72, which is well below the sector's average. My view is that AT&T is quite cheap especially compared with its major competitor Verizon (VZ). T is trading at 8.73 x earnings while VZ is up near 15.65. Also AT&T is not encumbered by debt as Verizon is. I don’t feel that the premium required to acquire Verizon is warranted. Also I think the fundamentals and history show that AT&T’s dividend is safer in these uncertain economic times. This great article shows why AT&T is an undervalued company with a bright future. While I will not go as far as to say that T is trading at a 43% discount to its fair value, I do think that it is a buy anywhere below $30.
Novartis (NVS): Novartis is a leader in healthcare solutions. The Company’s portfolio includes medicines, preventive vaccines and diagnostic tools, generic pharmaceuticals and consumer health products. NVS is a solid value stock with a dividend yield of 4.23% and a proven track record of growth (14% over the last 5 years).Novartis has also been very consistent in raising the dividend. Since the merger in 1996, Novartis has increased its dividend every year. Novartis also sports a nice dividned payout ratio of 55% It is trading at 13 x earnings with an EPS of 4.24. The strong balance sheet also makes NVS an attractive international investment. The debt-to-equity ratio is very low at only 22%. Novartis is very good at investing in and acquiring successful smaller companies. These include names like Roche, Lek, and Hexal - all of which have been profitable for NVS. In my opinion NVS seems to be a suitable addition to any value based portfolio. In the last month NVS stock has been cut back by 10%. This represents an opportunity to acquire some shares of this great company at an inexpensive price.
Coca- Cola (KO): is the world’s largest international beverage company with a presence in over 200 countries. It is the definition of an industry leader with only one serious competitor in Pepsi (PEP). KO has a 2.76% dividend yield with a consistent record of paying a dividend. For the past 48 years it has also been able to raise the dividend. Coke's P/E is somewhat difficult to determine at this point. Google finance will tell you that the trailing P/E is somewhere around 12. However, this is due to its purchase of the largest North American bottling corporation CCE, which boosted last year’s earnings significantly. Coke’s true P/E ratio at this point is thought to be closer to 17. KO also has a very respectable dividend payout ratio of 39%. So there is still room for the dividend to grow. Coca-Cola is a high quality company with an excellent dividend and a Debt/Equity ratio of 39%. Warren Buffett owning 8% of this company is also an extremely strong endorsement. With the markets bouncing all over the place there may be a great opportunity to pick up this stock at a value price. I am looking to buy somewhere in the $61-$62 range in order to get that coveted 3% yield.