Will These 5 Dividend Stocks Beat The Market?

|
Includes: ETE, INTC, MRK, PEP, T
by: Investment Underground

by Darnell Brown

This article will examine five high yield dividend stocks to determine if they have the potential to beat the market.

Intel Corporation (NASDAQ:INTC) Intel has a market cap of $103.44 billion with a price to earnings ratio of 9.04. The stock has traded in a 52 week range of between $17.84 and $23.96. The stock is currently trading around $20. On July 20th, the company reported revenues of $25.9 billion compared to the second quarter of 2010 when revenues were $10.8 billion. Second quarter net income was $6.11 billion compared to net income of $2.89 billion in the second quarter of 2010.

One of Intel’s competitors is Advanced Micro Devices Inc. (NYSE:AMD). Advanced Micro is currently trading near $6 with a market cap of $4.51 billion and a price to earnings ratio of 5.80. Advanced Micro does not pay a dividend. Intel pays a dividend of $0.84 with a yield of 4.3%.

Intel’s year over year net income was up by 129% from $5.04 billion in 2009 to $11.58 billion in 2010. The company’s second quarter revenues of $25.9 billion dwarfed the company’s previous quarterly revenue record, which was less than $13 billion. Intel’s purchases of McAfee and Infineon Wireless have proved to be extremely profitable. These purchases have allowed Intel to compete in the exploding Cloud based computing market. In spite of Intel’s recent successes, the stock price has remained steady. The stock price has increased by only 9.63% over the last 52 weeks. I believe that with a yield of 4.3% and a price to earnings ratio of 9.04, this stock is undervalued. I rate Intel Corporation as a buy.

AT&T Inc. (NYSE:T) AT&T has a market cap of $163.20 billion with a price to earnings ratio of 8.02. The stock has traded in a 52 week range of between $27.20 and $31.94. The current stock price is around $28. The company reported second quarter revenues of $31.49 billion with net income of $3.59 billion. In the second quarter of 2010, the company reported revenues of $30.8 billion with net income of $4.01 billion.

One of AT&T’s telecommunication competitors is Sprint Nextel Corporation (NYSE:S). Sprint is currently trading near $3 with a market cap of $10.33 billion and a negative price to earnings ratio. Sprint does not pay a dividend. AT&T pays a dividend of $1.72 with a yield of 6.20%.

AT&T is a company that offers investors consistent bottom line earnings and a strong and growing dividend income. In 2010, AT&T increased its earnings per share to $3.22 from $0.51. The company has been profitable in nine out of the last 10 years. AT&T has also been excellent at paying dividends. The company has paid quarterly dividends for decades and has increased its dividend in each of the last 5 years by a total of 30%. AT&T’s stock price has been steady. Over the last three years, the stock price has decreased by about 5%. The company has been in negotiations to acquire T-Mobile from Deutsche Telekom (OTCQX:DTEGF). If the acquisition goes through, AT&T will emerge as a stronger company. If the Department of Justice is successful in blocking the acquisition, AT&T will still be a profitable company. Regardless of how the acquisition works out AT&T will be an excellent investment for those looking to invest in a stable company with a high yield dividend. I rate AT&T Inc. as a buy.

Pepsico Inc. (NYSE:PEP) Pepsico has a market cap of $94.94 billion with a price to earnings ratio of 15.26. The stock has traded in a 52 week range of between $59.68 and $71.89. The current stock price is around $60. On July 21st the company reported revenues of $16.8 billion, compared to revenues of $14.8 billion in the second quarter of 2010. Second quarter net income was $1.89 billion up from $1.6 billion in the second quarter of 2010.

Pepsico’s primary competitor is the Coca Cola Company (NYSE:KO). Coca Cola is currently trading around $69 with a market cap of $159.28 billion and a price to earnings ratio of 12.92. Coca Cola pays a dividend which yields $2.7% versus Pepsico whose dividend yields 3.4%. Over the last 52 weeks, the stock price of Pepsico is down by 9.45%, compared to Coca Cola whose stock price has increased by 19.45%.

Pepsico has been a profitable company for many years and increased its earnings per share by 10% in the last quarter. In addition to being consistently profitable, the company has paid dividends for many years. Over the last five years, the company has increased its dividend payment by 98%. Pepsico is a terrific company, but if I were to invest in a beverage company I would have to go with Coca Cola which is best in its class. I rate Pepsico Inc. as a hold.

Merck & Company (NYSE:MRK) Merck has a market cap of $98.09 billion with a price to earnings ratio of 34.31. The stock has traded in a 52 week range of between $29.47 and $37.68. The current stock price is around $32. On July 29th the company reported revenues of $12.2 billion, compared to revenues of $11.3 billion in the second quarter of 2010. Second quarter net income was $2.02 billion $752 million in the second quarter of 2010.

One of Merck’s biggest competitors is Pfizer Inc. (NYSE:PFE). Pfizer is currently trading near $18 with a market cap of $142.62 billion and a price to earnings ratio of 17.07. Pfizer pays a dividend which yields 4.4% versus Merck, whose dividend yields 4.8%.

Merck has been a profitable company for many years. However, its earnings per share growth has increased by only 1% over the last three years. The company has also been consistent in paying dividends. Unfortunately, the dividend has not increased since 2004. Pfizer has some well known drugs in its portfolio but has not introduced any new block buster drugs in quite some time. The company’s stock price is down by 13.12% over the last 52 weeks, and with a price to earnings ratio of 34.31 the stock is still not cheap. It is unlikely that Merck’s stock price will move upward, and the dividend will probably remain stagnant. I rate Merck & Company as a hold.

Energy Transfer Equity LP (NYSE:ETE) Energy Transfer has a market cap of $8.47 billion with a price to earnings ratio of 39.72. The stock has been trading in a 52 week range of between $33.21 and $47.34. The current stock price is around $38. On August 6th the company announced revenues of $1.97 billion compared to revenues of $1.37 billion in 2010. Second quarter net income was $66.1 million compared to net income of $19.2 million in the second quarter of 2010.

One of Energy Transfers' competitors is AmeriGas Partners LP (NYSE:APU). AmeriGas is currently trading near $43 with a market cap of $2.44 billion and a price to earnings ratio of 16.42. AmeriGas pays a dividend which yields 6.9% versus Energy Transfers whose dividend yields 6.6%.

Energy Transfer has had a profit in each of the last five years. In the last quarter, earnings per share increased by 233%. The company has also paid a dividend in each of the last five years. Over the last three years, the dividend has increased by 42% to $2.50 per share. The dividend should be safe as the company has increased its cash reserves and has $150 million in cash. Energy Transfer is a company that has recently been able to increase profits and pay a monster dividend. I rate Energy Transfer Equity LP as a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.