The Highest-Yielders of the Dow

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Includes: DD, GE, INTC, MRK, PFE, T, VZ
by: Efsinvestment

Investing in high-yielding stocks is probably the best bet for making serious profits for long-term investors. The 10-year yield average of US treasuries is a record low at 1.79%. On the other hand, the stocks trading in the Dow pay an average dividend of 3.11%. In spite of the volatility in the market, several companies keep increasing their dividends. I have written a large amount of articles of the stocks paying attractive dividends.

Recently, CNBC compiled a list of the highest-yielders of the Dow. I will divide my article into parts in order to analyze all of them. I have examined all of these stocks from a fundamental perspective, and added my opinion about them. I have applied my O-Metrix Grading System where possible, as well. Here is a fundamental analysis of these stocks from CNBC’s list ‘Highest Dividend Yields of the Dow’ (Data obtained from Finviz/Morningstar, and is current as of September 30. You can download O-Metrix calculator, here.):

AT& T (NYSE:T): AT&T will spend about $20 million for two Bridgeton facilities. It has a P/E ratio of 8.7, and a forward P/E ratio of 11.1, as of September 30. Five-year annual EPS growth forecast is 4.4%. With a profit margin of 16.2%, and a dividend of 5.96%, AT&T is a magnificent stock for dividend lovers.

Earnings increased by 57.08% this year, while it is trading only 9.49% lower than its 52-week high. Target price is $33.04, which implies a 15.8% upside potential. O-Metrix score is 5.23, and it returned -0.3% in a year. The debt-to assets ratio is going down since Q2 2010, whereas it has a four-star rating from Morningstar. Debt-to equity ratio is 0.5, which crushes the industry average of 3.2. AT&T is a dividend pick for the next 5 years. I expect AT&T to beat the market in the long-term.

Verizon Communications (NYSE:VZ): Verizon is now legally against Apple’s demand for banning Samsung device sales in the U.S. Verizon shows a trailing P/E ratio of 16.6, and a forward P/E ratio of 14.3, as of September 30. Analysts expect the company to have a 4.2% annual EPS growth in the next five years. It offers a 5.38% dividend, while the profit margin is 5.9%.

Based on these indicators, Verizon has an O-Metrix score of 3.14. Earnings decreased by 47.77% this year, and insiders own only 0.01% of the stock. Target price is $38.80, indicating a 5.4% increase potential. Verizon returned 12.9% in a year, while it is trading only 3.05% lower than its 52-week high. Debts and assets are unstable. P/B is 2.6, way above the industry average of 1.5. While ROA is 2.82%, ROE is 16.15%. PEG value is 3.3. AT& T is a screaming buy when compared to Verizon. Holding Verizon is OK, though.

Merck & Co. (NYSE:MRK): Cuong Viet Do has been appointed as the Chief Strategy Officer of Merck&Co. The stock was trading at a P/E ratio of 35.2, and a forward P/E ratio of 8.5, as of September 30. Analysts estimate a 5.5% annualized EPS growth for the next five years. Although profit margin (6.1%) is more than doubled by the industry average of 14.5%, it offers an enjoyable dividend of 4.65%.

Target price is $39.43, implying a 20.5% upside movement potential. Merck is currently trading 11.15% lower than its 52-week high, while it returned –11.2% in the last twelve months. O-Metrix score is 2.32. Earnings decreased by 95.13% this year, and insiders hold only 0.03% of the shares. SMA50 and SMA200 are 1.61% and -2.19%, respectively. Merck is yielding the same dividend since September 2004. The debt-to assets ratio is increasing since 2007, and operating margin is 10.1%. While ROE is 5.20%, ROA is 1.91%. ROI is 3.91%, and PEG value is 1.5. This stock might be worth holding, but not buying.

Pfizer Inc. (NYSE:PFE): Pfizer’s rating has recently been downgraded to A+ from AA- by Fitch Ratings. The healthcare giant, as of September 30, has a P/E ratio of 16.8, and a forward P/E ratio of 7.9. Five-year annualized EPS growth forecast is 3.3%. With a profit margin of 12.7%, shareholders enjoyed a 4.45% dividend last year.

O-Metrix score of Pfizer is 3.13, whereas it is trading 16.67% lower than its 52-week high. Target price implies a 30.5% upside potential, while it returned 2.9% in a year. The debt-to assets ratio is climbing up for the last five years, and cash flow is decreasing. Pfizer had a -16.34% EPS growth this year. While SMA200 is -7.17%, SMA50 is -3.31%. Insiders own only 0.01% of the stock, and insider transactions have decreased by 7.14% within the last 6 months. ROA and ROE are 4.44% and 9.83%, respectively. PEG value is 2.3. However, Pfizer is an advantageous company to invest in. This biopharma promises a better future. For the current time, it is a risky buy.

General Electric (NYSE:GE): General Electric is planning to invest $200 million in a manufacturing plant near Mumbai, India. The Connecticut-based General Electric shows a trailing P/E ratio of 12.0, and a forward P/E ratio of 9.9, as of the September 30 close. Estimated annualized EPS growth is 11.7% for the next five years. It pays a 3.78% dividend, while the profit margin is 8.6%.

Target price is $21.32, indicating a 40.0% increase potential. The stock is trading 27.96% lower than its 52-week high, whereas it returned -6.4% in a year. The debt-to assets ratio is slowly going down for the last five quarters.. O-Metrix score is 7.06, and PEG value is 0.8. Insiders have been exercising options for some time. 11 out of 16 analysts recommend buying, and average analyst recommendation is 1.3 for General Electric (1=Buy, 3=Sell). I think GE is primed for a rebound.

DuPont de Nemours (NYSE:DD): DuPont, a Jim Cramer favorite, has successfully completed a 8.7-megawatt solar project in Thailand. DuPont has a P/E ratio of 11.4, and a forward P/E ratio of 9.1, as of the Friday close. Five-year annual EPS growth forecast for the next five years is 9.20%, which is fair, when its 9.64% EPS growth of past five years is considered. With a profit margin of 9.6%, DuPont pays a 3.97% dividend.

Earnings increased by 70.69% this year, and O-Metrix score is 6.42. Institutions own 0.12% of the shares. The stock returned -10.5% in a year, and it is currently trading 28.71% lower than its 52-week high. Debts are unstable, while assets are increasing for the last five years. Target price is $59.50, which indicates a 48.8% increase potential. Debt-to equity ratio is 1.1, far below the industry average of 5.2. ROE is 33.30%. Analysts give a 1.4 recommendation for the stock (1=Buy, 3=Sell). Moreover, it has a four-star rating from Morningstar. DuPont is an excellent profit-maker in the long run.

Intel Corp. (NASDAQ:INTC): Intel has just been decreased from ‘Buy’ to ‘Hold’ by Standpoint Research. The California-based Intel was trading at a P/E ratio of 10.2, and a forward P/E ratio of 9.0, as of September 30. Analysts estimate an 11.5% annualized EPS growth for the next five years. With a profit margin of 25.3%, and a dividend of 3.78%, Intel is an attractive stock for dividend lovers.

Earnings increased by 160.04% this year, and 7.40% this quarter. Institutions own 63.92% of the stock. Target price implies a 22.0% increase potential, whereas it has an O-Metrix score of 8.01. While SMA200 is 6.70%, SMA50 is 7.22%. Intel returned 11.0% in the last twelve months, and it is currently trading 10.09% lower than its 52-week high. Gross margin and operating margin are 63.0% and 33.6%, respectively. ROE is 25.91%, while ROA is 19.79%. PEG value is 0.8. My fair value estimate is $34.3 for Intel, which means that the stock is fairly undervalued. I expect a strong upwards momentum from Intel, so consider adding this stock to your portfolio.

Disclosure: I am long T, INTC.