By Kramer Winingham
As recession fears mount, retirees are looking for safe places to put their money. We’ll look at five dividend stalwarts and see if any fit the bill.
Lowe’s Companies, Inc. (LOW)
Lowe’s owns and operates home improvement stores in the United States, Mexico and Canada. The company’s main competitor is the industry leader, Home Depot (HD). Lowe’s also competes with local home improvement stores and specialty stores like Builder’s Firstsource (BLDR) and Lumber Liquidators (LL). Investors are eagerly waiting for the right moment to invest in any one of these home improvement companies. Lowe’s share price tells the story as it has been trading up and down since 2009. Investors are trying to guess a rebound in the housing market and the economy, which will work wonders for the whole home improvement industry. Lowe’s shares are trading for 12.4 times forward earnings with a 2.84% dividend yield. For the long run, Lowe’s is definitely a good pick. In the short run the dividend yield makes it a good pick as well.
Walgreen Co. (WAG)
Walgreen’s is a national drugstore chain. The company competes with CVS Caremark (CVS), Wal-Mart (WMT) and the ailing Rite Aid (RAD). Walgreen’s has been a model of stability throughout the Great Recession as earnings have largely been unaffected. Earnings have managed to grow 6.9% annually over the last five years and the company’s dividend yield has grown 21.4% annually over the same time period. Now yielding 2.6% a share, this is only slightly below Wal-Mart’s 2.87% yield and better than CVS Caremark’s 1.46% yield and Rite Aid’s 0% yield. Walgreen shares are also trading at an attractive 11.8 times earnings. Coupled with the dividend yield, Walgreen’s is a safe place for investors.
Lockheed Martin Corp. (LMT)
Lockheed Martin is a national defense contractor with four main business segments: Aeronautics, Electronic Systems, Information Systems & Global Solutions, and Space Systems. Since the company’s share price peaked in 2008, shares have been somewhat range-bound despite improving fundamentals. Earning have been growing at 11.9% annually over the last five years while dividends have grown 20.3% over the same time period. Now offering a 4.16% dividend yield, Lockheed Martin beats the yields of competitors Northrop Grumman Corp. (NOC), General Dynamics Corp. (GD), Honeywell International (HON) and Goodrich Corp. (GR).
The main fear with all these defense companies is that scale backs in national defense spending would greatly impact revenues. In 2010, 85% of Lockheed Martin’s sales were to the U.S. Government as either the main contractor or subcontractor. As U.S. military engagements are scheduled to wind down, it’s fair investors are concerned. However, national defense spending is one segment of the budget that has remained out of most the discussions about budget cuts. Trading at 9.6 times forward earnings with a 4.16% dividend yield, Lockheed Martin is a pretty good deal for value investors at the moment.
T. Rowe Price Group, Inc. (TROW)
T. Rowe Price offers financial services for individual and institutional investors. This company is different than most financial and investment firms because it does not carry any debt nor does the company speculate with its own money. Revenues and income are based on fees assessed to the assets managed. This means market downturns only decrease revenues through the loss of fee income instead of the deterioration of capital. This strategy has allowed T. Rowe Price to weather the Great Recession with ease. Dividends have grown 17.4% annually over the last five years and earnings have grown 9.9% annually over the same time period. While the company is more expensive than competitors Invesco Ltd. (IVZ) and Principal Financial (PFG) based on multiples of forward earnings, T. Rowe Price has a much better net profit margin, 22.7% versus 16.9% and 9.0% respectively. T. Rowe Price is a very stable and well-managed company that will weather any market downturns. The company is also structured to perform well as the economy strengthens. The high valuation is a little concerning, but may be worth it for a company this strong. T. Rowe Price is definitely a safe place for fearful investors.
Watsco Inc. (WSO)
Watsco distributes air conditioning, heating and refrigeration equipment. Watsco is the largest distributor in the industry. The company is coming off a recent earnings miss and is still trading at 18.4 times forward earnings. This is much higher than others in the wholesale electronics industry like Arrow Electronics (ARW), Avnet Inc. (AVT), and Ituran Location and Control Ltd. (ITRN), all of which trade for less than 10 times forward earnings. Watsco does offer an attractive 4.3% dividend yield. However for value investors the valuation is just too high to warrant an investment at the moment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.