Low interest rates, which the Fed recently indicated will stay low for the next two years has prompted me to look at a few high yield stocks that may provide the necessary income that some investors are seeking. Here’s the five we studied:
Enersis S.A. (ENI): Shares are trading at $19.40, at the low of their 52-week trading range of $18.18 to $25.42. At the current market price, the company is capitalized at $12.67 billion. Earnings per share for the last fiscal year were $1.60, and paid a dividend of $0.80 (a yield of 4.20%).
Enersis is one of the utility companies quoted on U.S. exchanges that deliver their products to countries outside of the United States. For diversification in this sector, investors could look toward the international companies and Enersis may the best of them. It offers a dividend when competitors such as Iberdrola (IBDRY.PK) and AES Corp (AES) pay none. Its earnings from its target countries of Latin America should be better protected in an economic downturn than Iberdrola’s predominantly European earnings.
Merck & Company Inc (MRK): Shares are trading at $31.83 at the time of writing, in the middle of their 52-week trading range of $29.47 to $37.68. At the current market price, the company is capitalized at $98.06 billion. Earnings per share for the last year were $0.93, placing the shares on a PE ratio of 34.30. It pays a dividend last year of $1.52, yielding 4.90%.
Pharmaceuticals are a sector that grows in the good times, and offers a defensive quality in the bad. But is Merck the best of the giants? Comparing to Pfizer (PFE) and Glaxo Smithkline (GSK), it may be that investors for income should look to Glaxo Smithkline. Pfizer’s gross margin is 75.85%, similar to Glaxo at 73.36%. Merck’s gross margin is 65.22%. Looking at operating margins, Glaxo’s is far better than Merck and Pfizer (25.27% and 21.25% respectively), and its dividend yield of 5.10%, covered by its earnings is better also. Whilst Merck is a good investment, I believe Glaxo Smithkline offers a better value.
Johnson & Johnson (JNJ): Shares are trading at $64.53 at the time of writing, against a 52-week trading range of $56.99 to $68.05. Earnings per share for the last year were $4.18, placing the shares on a price to earnings ratio of 15.76. It paid a dividend last year of $2.28, a yield of 3.60%.
Johnson & Johnson has paid increasing dividends for 48 years, a fine example of a company that believes in rewarding its shareholders with a cut of the profits. Its medical research and development business looks set to do well, despite cuts in government spending. Margins at both the gross and operating levels better than those of Abbot Labs (ABT), another medical development company that has a great dividend policy. With an undemanding price to earnings ratio of 15.44, Johnson and Johnson is a good bet in a sector that has traditionally provided income with relatively stable share prices.
AT&T Inc (T): Shares are trading at $28.73 at the time of writing, as against their 52-week trading range of $26.20 to $31.94. At the current market price, the company is capitalized at $170.22 billion. Earnings per share for the last fiscal year were $3.44, and it paid a dividend of $1.72 (yield of 6.10%). Operating margins at competitor Verizon (VZ), the second largest of the telecoms providers in the United States, are a little better than AT&T’s t 17.57% versus 15.51%. Verizon stock yields 5.60%. Unsurprisingly there is not a lot to choose between the two companies when looking at these numbers, where the difference is the price to earnings ratios: At&T trades on a multiple of 8.42, whereas Verizon shares trade at a price to earnings multiple of 16.04. This is because of doubts about AT&T’s ability to bear the debt from its acquisition of T-Mobile (DTEGY.PK). I believe that the market is not giving AT&T’s management the credit it deserves. This purchase is likely to enhance cash flow in the medium term, and synergies will cut implied operating costs. I think the dividend is safe, and the shares good value when compared to its closest rival.
Energy Transfer Inc (ETE): Shares are trading at $36.56 at the time of writing, in the lower quartile of their 52-week trading range of $33.21 to $47.34. At the current market price, the company is capitalized at $8.15 billion. Earnings per share for the last year were $0.96, though it paid a dividend of $2.50 (a yield of 6.60%).
Energy Transfer Equity L.P. receives distributions from its two subsidiary companies ETP (ETP) and Regency (RGNC) and distributes these to its shareholders. These distributions are set to continue in the future through its cross agreements. A similar company is AmeriGas Partners L.P. (APU), where earnings per share are $2.60 and the price to earnings ratio is 16.03 versus Energy Transfer’s 38.39 multiple, and the yield is 7.20%. Equity Partnerships can be a good provider of dividends and growth. For me, AmeriGas , with its lower price to earnings ratio, and better dividend yield, looks a safer bet for both.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.