5 Dividend Stocks: Which Is a Buy After the Recent Sell-Off?

by: Vatalyst

Last week's selloff put a number of rock-solid dividend stocks on sale. We analyze five below, along with their closest competitors, for 'buy' ideas. Please use this article as a starting point for your own research.

Johnson and Johnson (NYSE:JNJ)
– has become an interesting turnaround value investment worthy of attention. Despite a slew of recalls the past two years it has consistently returned value to shareholders. JNJ maintains a strong operating margin of 26%, easily topping competitors Novarits (NYSE:NVS) at 22.84% and Covidien (COV) at 21.75%.

Having the best margins in the industry shows that the market perceives JNJ products to be superior to competitors and that JNJ is more efficient. JNJ also has the highest return on equity at 20.20%. NVS and COV have a return on equity of 16.49% and 19.07% respectively.

Current price-to-earnings ratios show the market favors JNJ moving forward. JNJ has the highest trailing- twelve-months price-to-earnings ratio at 14.75 with a forward price-to-earnings ratio of 11.66. NVS and COV trade at a trailing-twelve-months price to earnings ratio of 12.65 and 12.31 respectively, with a forward price- to-earnings ratio of 9.26 and 10.66.

Earnings growth for the three companies over the next 12 months varies, JNJ 6.05%, NVS 3.80% and COV 8.62%. While COV is thriving since Tyco (NYSE:TYC) spun it off, they have a lot of improvements to make in order to justify a higher valuation. NVS is based in Switzerland and as a result NVS could come under additional economic pressure as the Swiss franc, tied to the euro, continues to endure volatility and uncertainty from the European debt crisis. With solid fundamentals and an industry leading dividend yield of 3.60% JNJ is the best valued stock in the industry in position to benefit from current market conditions and rebound from brand damaging recalls.

Intel Corporation (NASDAQ:INTC) – might be one of the best dividend paying stocks on the Dow Jones Industrial Average today. It keeps executing despite the uncertain macro economic environment.

Management has been able to raise the dividend three times since 2009 and bought back over $9 billion in stock. Despite solid growth in demand for semiconductors since 2009, competitors Advanced Micro Devices (NYSE:AMD) and Texas Instruments (NYSE:TXN) haven’t been able to capitalize on the trend nearly as well as INTC. INTC’s operating margins stand at 33.55% versus AMD’s 6.54% and TXN 's 29.4%. INTC also pays a 3.80% dividend compared to TXN’s 2.50%; AMD does not pay a dividend.

Looking forward, INTC’s growth in earnings per share for the next year is a paltry 4.07% vs. AMD’s 23.68% and TXN’s 6.33%. However, looking back at operating cash flows provides a better angle into the quality of those earnings. Cumulatively over the past three years AMD has negative operating cash flows in excess of $550 million. By comparison, INTC has positive operating cash flows over $37 billion while TXN's is just over $9 billion. This means AMD will need to relay on the stock and debt markets to raise more money to fund future growth operations. By comparison INTC and TXN can fund future growth without diluting shareholders or adding debt to the balance sheet.

While TXN recently completed a well thought out acquisition of National Semiconductor (NSM) it has a lot of work to do to maximize the return on its investment. In the meantime, INTC can be expected to continue generating great value to shareholders with its high yielding 3.80% dividend and regular stock buybacks.

Kimberly Clark Corporation (NYSE:KMB) – posted mixed results in July. Sales jumped to an all time high for the quarter, but earnings where under pressure from high commodity costs. Despite the mixed results they raised full year sales growth projections.

The market has taken a licking since the beginning of August, but KMB is looking good and weathering the storm. The European economic crisis has strengthened the dollar. Economists have lowered economic growth estimates across the globe and commodity costs are coming down. KMB pays a 4% dividend and has outperformed the market by over 18% since mid-July.

Looking forward KMB is the type of stock investors and money managers can count on for a solid dividend. Other companies to consider in this space include Procter and Gamble (NYSE:PG), yielding 3.40% and Energizer Holdings Inc. (NYSE:ENR). Energizer Holdings Inc. is trading at the largest discount to next year's earnings with a forward looking price-to-earnings ratio of 10.78; Note that they do not pay a dividend. KMB and PG are trading at a forward looking price-to-earnings ratio of 13.25 and 13.29 respectively. PG offers a 3.40% dividend.

Energen Corporation (NYSE:EGN) – with economic growth numbers undergoing regular downward revisions, commodity prices are under pressure. EGN is down over 35% from April highs. Competitors Pioneer Natural Resources (NYSE:PXD) and Sempra Energy (NYSE:SRE) haven’t fared any better. With rising fear of another US recession, oil prices have sold off. Dividend yields in this sector are much lower than other companies mentioned above. EGN yields 1.30%, PXD 0.10% and SRE 3.90%. EGN has the highest operating margin, 32.22% versus PXD’s 26.82% and SRE’s 17.16%. Return on equity, 12.43% for EGN, 6.96% for PXD and 12.12% for SRE. Looking forward, PXD is projecting earnings growth of 28.25% compared to EGN’s 8.45% and SRE’s 6.04%. While exposure to this sector will serve investors in the future, at current prices and volatility it would be best to take a pass and check out the sector at another time.

Cisco Systems Inc (NASDAQ:CSCO) has had a rough couple of years. Th company has Missed revenues and missed earnings. They have bumbled along from one expectations gap to another.

The market has selected Juniper Networks (NYSE:JNPR) as the sector leader in the near term. It commands a forward looking price-to-earnings ratio of 12.26 while CSCO trades at only 8.28 times forward earnings. Despite having higher operating margins of 20.04%, CSCO has a lot of competitors to contend with today including Alcatel-Lucent (ALU) to Hewlett Packard (NYSE:HPQ).

Earnings growth at CSCO for next year is projected to be 9.52% year-over-year, compared to ALU’s growth rate of 28.89% and JNPR’s 17.31%. More than half the analysts who cover the stock see lots of upside potential in CSCO shares at current prices. With nine of fifteen analysts rating CSCO a 'strong buy' or simply a 'buy.' Despite the positive reviews, I would avoid CSCO. It is more likely a value trap with a low yield. The only positive trend in the current market they stand to benefit from is the sharp decline in the price of copper.

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