These seven highly rated stocks have great stories, positive catalysts for future growth, are highly rated by Reuters and pay a hefty dividend. Each of the following large-cap or better stocks is rated Positive by Reuters and has a dividend yield of 4.5% or greater.
Many analysts are predicting a recession going forward. I don’t see it happening. How soon we forget: Just weeks ago you heard nothing of a recession, and now it is assured, according to the crowd. In my experience the crowd is usually wrong. There may be more volatility in front of us even with the more than 10% drop in the market recently; nevertheless, this may be a good point to start a position in these dividend-paying buying opportunities. As Warren Buffett says, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
My dividend investing approach is based on constructing a portfolio of highly rated stocks with exceptional dividend yields that generate money throughout the year. Characteristically, dividend investing is popular among retirees and those who wish to live on their savings and are no longer able to work. One reason to invest in dividend-paying stocks now is due to the fact they will be the investment of choice to fund the retirement of many baby boomers, which will create enormous demand for these stocks.
Dividend-paying stocks have the potential for both capital gain and income production. Boomers will be looking for stocks that have a track record of increasing dividends, giving them yet another hedge against inflation. This combination will be necessary to fund the lengthening retirement that comes with a greater life expectancy. Combining these factors with the Fed’s recent announcement that rates will remain at ultra-low levels for at least the next two years, we can see that fixed income instruments such as bonds and CDs provide little protection against inflation. Factor this in with the fact that historically, dividend-paying stocks have outperformed non-dividend-paying stocks, and you have a recipe for outstanding returns.
After the precipitous drop in the market in 2008, the high dividend payers were the first to recover. Seven highly rated large-cap or better stocks with a dividend yield of 4.5% or better are AT&T, Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ), Merck & Co. Inc. (NYSE:MRK), Bristol-Myers Squibb Company (NYSE:BMY), Eli Lilly & Co. (NYSE:LLY), Southern Company (NYSE:SO) and Exelon Corp. (NYSE:EXC).
Below is a summary of each company’s dividends and EPS growth details followed by a brief description of each company, a summary of current analysts' estimates and up/downgrade activity and a chart of the company's key statistics. I would scale in to any position a quarter or a tenth at a time. Please use this as a starting point for your own due diligence.
Company EPS and Dividend Detailed Statistics (Click to enlarge)
AT&T Inc., together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. The company is trading below analysts' estimates. AT&T has a median price target of $33 by 25 brokers and a high target of $36. The last up/downgrade activity was on Jun 24, 2011, when Kaufman Brothers initiated coverage on the company with a Hold rating.
Verizon Communications Inc. provides communication services. The company operates through two segments, Domestic Wireless and Wireline. The company is trading below analysts' estimates. Verizon has a median price target of $39 by 27 brokers and a high target of $48. The last up/downgrade activity was on Mar 28, 2011, when Robert W. Baird upgraded the company from Neutral to Outperform.
Merck & Co., Inc., a global health care company, discovers, develops, manufactures, and markets medicines, vaccines, biologic therapies, and consumer and animal products. The company is trading below analysts' estimates. Merck & Co. has a median price target of $40 by 17 brokers and a high target of $44. The last up/downgrade activity was on Jan 13, 2010, when Credit Suisse upgraded the company from Neutral to Outperform.
Bristol-Myers Squibb Company, a global biopharmaceutical company, discovers, develops, and delivers innovative medicines that help patients prevail over serious diseases. The company is trading on par with analysts' estimates. Bristol-Myers Squibb has a median price target of $30 by 16 brokers and a high target of $39. The last up/downgrade activity was on Mar 31, 2011, when Jefferies downgraded the company from Buy to Hold.
Eli Lilly and Co. develops, manufactures, and sells pharmaceutical products worldwide. Eli Lilly has a forward P/E ratio of 9.56. The company is trading on par with analysts' estimates. Eli Lilly has a median price target of $35 by 13 brokers and a high target of $43. The last up/downgrade activity was on Aug. 10, when Argus upgraded the company from Hold to Buy.
Southern Company, through its subsidiaries, operates as a utility company that provides electric service in the southeastern United States. The company is trading on par with analysts' estimates. Southern Company has a median price target of $42 by 17 brokers and a high target of $45. The last up/downgrade activity was on Aug 2, 2011, when Hilliard Lyons upgraded the company from Neutral to Buy.
Exelon Corporation operates as a utility services holding company in the United States. The company primarily engages in the generation of electricity. The company is trading below analysts' estimates. Exelon has a median price target of $47 by 13 brokers and a high target of $56. The last up/downgrade activity was on Jun 24, 2011, when RBC Capital Markets initiated coverage on the company with an Outperform rating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.