Market sell-offs open the door for high dividend yields. We’ll look at five companies that have recently caught the eye of dividend investors.
Analog Devices Inc. (NASDAQ:ADI)
Analog Devices designs, manufactures and markets high-performance integrated circuits for all types of electronic equipment. This company has delivered an interesting performance through the Great Recession. The company’s stock price had experienced strong growth since 2008. However, since May, the company’s stock has been hit hard, falling from a high of $42.68 to a low of $29.01. This drop has made the stock more attractive to dividend investors, as it now stands with a 3.1% dividend yield. Not bad for a company that is trading at 11.5 times forward earnings and has been growing earnings 18.9% annually over the last five years. The company holds significant competitive advantages over competitors NXP Semiconductors (NASDAQ:NXPI) and STMicroelectronics (NYSE:STM). This is indicated by Analog Devices’ net profit margin of 29.6% compared with the 12.5% profit margin of NXP Semiconductor and STMicroelectronics 9.5% profit margin.
The recent weakening of Analog Devices’ share price is mainly due to an earnings miss and lower guidance for the coming quarters. However the reaction to this has been largely priced in. For someone who likes the company’s long-term growth potential and dividend yield, now might be a good time to buy.
Emerson Electric Company (NYSE:EMR)
Emerson Electric is a diversified manufacturing and technology company. The company trades pretty closely with the market, and has ridden the market down since the end of July. The weakening of Emerson’s share price has started to put it on the map for dividend investors. The company shares hit their high for the year in February, trading at $62.24, and have since traded as low as $41.37. This is has bumped the dividend yield up to 3.2%, which has started to get dividend investors excited. While competitors like General Electric (NYSE:GE), ABB Ltd. (NYSE:ABB), and Hitachi Ltd. (HIT), all have followed a similar trading pattern; Emerson is the only one to grow its dividends over the last five years. Emerson pays out 43.5% of earnings, well above the industry average 27.2%. The company also reaffirmed its earnings guidance for fiscal year 2011, forecasting earnings per share in the range of $3.20 to $3.30. These earning will be up nearly 15% from last year. With the company trading at only 11.8 time forward earnings, Emerson looks like a nice prospect for the dividend value investor.
Honeywell International Inc. (NYSE:HON)
Like Emerson, Honeywell is a diversified technology and manufacturing company. The company produces aerospace products, security technologies, turbochargers, automotive products, and chemicals, among other things. For Honeywell, the story is similar to Emerson’s. Shares were trading as high as $62.28 earlier this year, however prices have since sank as low as $41.62 in the last month. This has again presented an opportunity for the dividend value investor, as the company’s dividend has risen to 3% on the falling share price. This yield is better than competitors BorgWarner Inc. (NYSE:BWA), Johnson Controls Inc. (NYSE:JCI), and United Technologies (NYSE:UTX). Growth prospects are modest at 7.1% over the next five years, however the company trades at a fair multiple of 11.3 times forward earnings. After beating earnings estimates the last two quarters, Honeywell may be ready to outperform expectations and offer investors a strong dividend in the meantime.
First Niagara Financial Group (NASDAQ:FNFG)
First Niagara Financial Group is the holding company for First Niagara Bank, which provides retail and commercial banking services. The company has been trading in a range for most of the Obama recession. Recently with the market sell-off since July, First Niagara’s share price has been hit particularly hard. Now trading for just 9.8 times forward earnings, the company’s dividend yield currently sits at 6.3%. This yield beats competitors M&T Bank Corporation (NYSE:MTB) and Hudson City Bancorp (NASDAQ:HCBK). First Niagara’s capital adequacy ratios sit at 12.0% for Tier 1 risk-based and 12.7% for Tier 2 risk-based capital. These ratios represent substantial reserves, meaning First Niagara has the capacity to grow substantially in an economic expansion, while at the same time the bank is cushioned for a downturn. First Niagara is well capitalized and healthy. For a dividend value investor, First Niagara’s yield and health may make it the best pick in the savings and loan industry.
H&R Block Inc. (NYSE:HRB)
H&R Block offers tax preparation, retail banking, accounting, and other business advisory and consulting services. The recent pullback in H&R Block’s share price has dividend investors taking a closer look. The yield now sits at 4.6% and the company’s shares are trading at 8.6 times forward earnings. So why don’t we buy it now? The problem with H&R Block is not the valuation; it’s the business model. Cheap software alternatives have made the brick-and-mortar tax preparation a lot less attractive. Long-time competitor Jackson-Hewitt (OTC:JHTXQ) recently filed for bankruptcy. Intuit Inc. (NASDAQ:INTU), the maker of Quickbooks, is standing much firmer with its software-based business model. Jackson-Hewitt’s bankruptcy may ease some competition for the market, however H&R Block still is not in what investors would call an attractive market. For these reasons it’s probably best to avoid H&R Block, despite the attractive yield.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.