Today's article brings together five profitable stocks with the lowest possible risk. These stocks can be bought at modest prices given the latest market mania. These stocks are a consideration for risk-averse retirees who use stocks to earn higher yields than T-bills:
After the U.S. department of justice sued to stop the pending acquisition of T-Mobile USA (OTCQX:DTEGY) by AT&T, T stock slumped $2 in value right away to $28 per share. Although the price has recovered a bit, AT&T is very much near its 52 week low. Its stock enjoyed a price of up to $40 while the market boomed in 2005. With a decent dividend yield of 6.07%, AT&T stock is a good buy at this point in time. While the stock may rise substantially after a recovery from the acquisition deal, a 6.07% dividend is far above average in this industry.
Amongst competitors Spring Nextel Corporation (S) and Verizon Communications (VZ), AT&T has the highest dividend percentage. Analysts at S&P have also recently stated that there is a fair enough chance that the deal will still be carried out. Moreover, AT&T is undervalued at this time, and it has future growth prospects in the coming fiscal year 2011-2012. All of these factors make AT&T stock a nice buy for this week. AT&T will still dominate iPhone sales even with news that Sprint Nextel plans to offer the iPhone 5 to customers this fall, and that may prove a boost to Sprint. Hence, these two stocks in the industry are attractive; however AT&T has a much higher dividend yield.
Verizon Communications (VZ):
VZ saw yet another fall in its price while the day closed at $35.80, just losing 54 cents following the day high of $36.32. VZ has a dividend yield of 5.43%, just next to the 6.07% yield of its competitor, T. VZ has a historical record of increasing dividend payouts every year since 2006. It has recently allowed a 2.6% increase in its payouts to stand with its statement of serving its investors in a better and profitable way. Providing a yield higher than the average yield of T-bills or 10 year bonds, VZ’s 5.55% dividend yield has buffered its stock price over time. VZ can be placed next to T as a major attraction, with the second highest dividend payout ratio in U.S. telecom. VZ is unlikely to announce a dividend increase at this point of time in the year, due to reasons such as declining markets and poor profits. VZ also foresees increasing profits in following quarters, which will also give a price hike to its stock.
France Telecom ADS (FTE):
FTE is at its lowest price over a period of 10 years. The stock currently trades at $17.87, while it traded at $40 in 2008. EPS is better, a figure of $2.55, while P/E ratio is 7.03 which falls somewhere near the industry average. The latest big news is that FTE has announced a 10% dividend following the stock's decline in price. This is a much better trade for investors who get this return paid by dividend, despite the decrease in the prices. We simply don't see much more downside from here. While FTE is near its 52 week low, chances of further declines in the price are pretty much nil. The stock is a good one to consider for those investors who target certain income through dividends. The nearest competitor is Vodafone Group PLC (VOD) which traded at $40 in 2008 and subsequently declined to almost 45% of its value in early 2009. While the share price has regained some value to its present at $26.40, the stock has a 52 week high near $30; hence it is not as attractive at this point of time. Moreover, the dividend payout is also much lower at 7.30% though that is still a solid yield and a multiple over what T-bills offer.
Chevron Corporation (CVX):
CVX is another stock which can be quoted as a low-risk dividend supplier. The stock is perfect because it has relatively low beta and modest volatility, while it suits those who target dividends because of its yield. The risk is lower than the other stocks of the industry with a modest 3% in dividends. The price has experienced short term volatility but it does not negate the amount of dividend the company pays out annually. The yield is slightly higher than that of T-bills or corporate bonds, and the sweet thing is that the risk can be kept to minimum. Although not advisable for those who target long term gains from price volatility, others can go long at these low levels to obtain capital appreciation from CVX. Retirees can get comparable yields out of Express Scripts Inc. (ESRX) but the company is priced fairly higher and with a much lower dividend yield. The same is the case with Walgreen's (WAG) with a payout ratio of 2.60% and Wal-Mart Stores (WMT) with 2.70% payout. Compared to its industry, CVX is priced below its fair value in our opinion; hence it stands out as a good buy for investors seeking a safe investment.
Exxon Mobil Corp (XOM):
XOM currently trades at $72.14 with a dividend payout ratio of 2.61%. XOM is yet another stock with a decent dividend yield higher than the industry average. It has also suffered from the recession, as it traded around $98 in 2008. ExxonMobil purchased XTO Energy’s offshore and onshore natural resource assets but has gone through a deal to sell some of XTO’s offshore assets recently. One of the company's competitors is British Petroleum (BP), which is trading at $36.54 with a dividend payout ratio of 4.40%. It is noteworthy that BP has reached its 52 week low, and incoming news on the profit front is not good. The energy sector has suffered a lot in the recent quarter as oil and natural gas prices have tumbled. BP can decline further in these circumstances, but the payout ratio remains higher than that of XOM. XOM and BP are a trade-off: Although XOM is more stable than BP, a smaller operator like Keyuan Petrochemicals (OTCQB:KEYP) offers up to 7% in dividends while staying away from the legislative and operational headline risks faced by BP and XOM.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.