Uncertain markets have created some pretty attractive yields for dividend investors. I'll look at five companies and see if any belong in the value investor’s dividend portfolio:
General Electric Co. (NYSE:GE)
General Electric is one of the largest most diversified technology and financial services companies in the world. With such diversified operations it’s difficult to compare General Electric to competitors. The company has varied competitors from industrial manufacturing to healthcare to finance. The source of much of the trouble with General Electric has come from its financial segment GE Capital, which was hit hard in the Great Recession. In terms of manufacturing General Electric stacks up well against Koninklijke Philips Electronics NV (NYSE:PHG) and Siemens AG (SI). General Electric is much cheaper that PHG in terms of forward earnings, 11.3 versus 18.4. However, PHG offers a better dividend yielding 4.7% to General Electric’s 3.9% dividend yield. Siemens AG is cheaper than both at 9.2 times forward earnings, but has a weaker dividend yielding 2.7%.
Going forward looking for dividend stocks, General Electric could be a good option. The company pays out 43% of its earnings. The dividend has fallen nearly 15% a year over the last five years due to GE Capital’s struggle. Still a little beaten up over GE Capital, now might be a good time to get into this mature company.
Intel Corporation (NASDAQ:INTC)
Intel is the world leader in computer chip manufacturing. Intel is a company with strong competitive advantages. This is shown in Intel’s 25.3% net profit margin compared to competitor Advanced Micro Device’s (NASDAQ:AMD) 12.9% profit margin. Intel is also 25 times larger than AMD. AMD even went as far as to write in its 10-K, the following: “[Intel’s] dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively.” That statement looks like the definition of a competitive advantage.
The great news is Intel isn’t priced like it’s got this type of competitive advantage. Trading at 8.6 times forward earnings, Intel is priced more like Bank of America (NYSE:BAC). In terms of a long-term dividend-yielding value investment, it doesn’t get much better than Intel. In addition to the cheap valuation, Intel offers a 4.1% dividend yield that has grown 14.5% annual over the last five years.
Chimera Investment Corporation (NYSE:CIM)
Chimera Investment Corporation is a specialty finance company that invests in residential mortgage backed securities, residential mortgage loans, and other real estate related securities. Founded in 2007, Chimera has so far survived the Great Recession. Share prices peaked in the beginning of 2008 at $13, crashed to just over $1 by the fall of 2008 and have since rebounded to just above $3. So why is Chimera on our dividend king list? Mainly due to collapsed share prices and REIT payout rules, Chimera’s dividend yield is 16.9%. Investors have naturally avoided any company caught thinking about mortgage-backed securities since the 2008 mortgage backed implosion.
The good news is anytime public sentiment gets this bad towards any investment, value opportunities arise. Competitors are in the same boat as Chimera. The dividend yields for Annaly Capital Management (NYSE:NLY), Capstead Mortgage (NYSE:CMO), and MFA Financial (NYSE:MFA) are 14.7%, 13.5%, and 14.6%, respectively. All trade at less than 7.4 times forward earnings. The key is figuring the risk of these companies. Which ever survives will pay off handsomely. In the past, REITs and mortgage-backed securities were regarded as sound investments. That time will return, especially with increasing lending standards, one could argue recent mortgages are safer than they used to be. Economist Hyman Minsky claimed stability breeds instability in financial markets. It might be time to wonder if instability breeds stability. Due diligence is obviously required to select the right REIT however the potential is there for a value investor with the right risk appetite.
The Interpublic Group of Companies, Inc. (NYSE:IPG)
The Interpublic Group of Companies is an advertising and marketing services firm. This company is pretty much in line with competitors. IPG has a net profit margin of 4.5%, which is slightly lower than the 6.8% net profit margin of competitor Omnicon Group (NYSE:OMC). Competitor WPP ADR (NASDAQ:WPPGY) does offer a better dividend yield than IPG, 3.7% versus 2.8%. However, IPG has better long-term growth projections, currently 15.5%, which is much better than the current estimates of 10.7% for Omnicon Group and 7.7% for WPP. All three competitors are trading at similar forward price multiples ranging from 10.1 to 13.3, with IPG trading at the upper limit of 13.3. Unless the optimistic growth projections are validated, IPG might be worth avoiding as a dividend contender.
Time Warner Inc. (NYSE:TWX)
Time Warner is a global leader in media and entertainment. The company operates three segments: cable television networks, filmed entertainment, and magazine publishing. Since spinning off its cable-providing segment Time Warner Cable (TWC), net profit margins have been expanding for Time Warner Inc. Profit margins were 9.2% over the last twelve months compared to 4.4% over the last five years. Currently trading at 10.8 times forward earnings, the company is pretty affordable. This valuation is in line with competitors News Corp. (NASDAQ:NWSA) and Walt Disney Co. (NYSE:DIS), both trading for about 10-11 times forward earnings. What makes Time Warner Inc attractive is the 3.1% dividend yield which is twice the industry average of 1.5%. These dividends have been growing 23.2% annually for the last five years. Furthermore the company pays out 41.6% of its earnings. This is a very dividend investor-friendly stock. If you are bullish on the media and entertainment look to Time Warner because of the strong dividend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.