By: Brett Bivens
In uncertain economic environments, with investors moving from risk-on trades to risk-off trades, dividend stocks remain a favorite safe haven for risk-averse investors. We have identified five ‘must own’ dividend stocks for 2012:
AT&T Inc. (T)
T, which has long been a favorite of value investors, has seen a 2.41% increase in stock price on a year to date basis and has been impacted far less negatively than many competitors in recent months. With a dividend of 5.96%, T edges out other top industry players like Verizon Communications (VZ) and Chunghwa Telecom (CHT), which yield 5.38% and 5.71%, respectively.
The stock remains a favorite of many equity analysts, something that was reinforced following the company’s agreement to purchase T-Mobile USA from Deutsche Telekom for $39 billion in early 2011. The move, should it go through, will boost the market share of the company and will allow them to reach more customers.
With a forward price to earnings ratio of 11.35 times, the stock appears inexpensive relative to many peers and given its strong dividend and history of strong performance, T looks to be a buy for long-term value investors.
Deutsche Telekom AG (OTCQX:DTEGY)
Despite instability in the European markets and the hesitance of many investors to invest in eurozone equities, DTEGY has held up well and remains attractive based in its strong dividend yield of 8.63% and its diversified global footprint.
Although the company maintains a relatively high price to earnings ratio, the stock appears inexpensive when looking at free cash flow metrics. Using 2010 price to free cash flow numbers, DTEGY bests competitors like Portugal Telecom (PT) and BCE Incorporated (BCE).
Should uncertainty in the eurozone clear up in the near future, DTEGY could end up providing investors with strong exposure to that market. Even without clear and positive news out of Europe, DTEGY’s strong dividend will remain attractive to many value investors.
Partner Communications Company Ltd (PTNR)
PTNR, currently trading near 52-week lows, has seen more than half of its market capitalization wiped out since early 2011. In an effort to allay investor fears about the future of the company, the Board brought on Haim Romano as new CEO (effective October 22nd). Despite the dip in stock price, PTNR pays a huge dividend in an industry where only a few competitors offer the same. At 20.58%, PTNR’s dividend bests other top stocks in the industry like Cellcom Israel (CEL) at 16.54% and Portugal Telecom (PT) at 12.39%. Other similar-size players, like Clearwire Corp (CLWR) and NII Holdings (NIHD), pay no dividend at all.
At this point, PTNR may be oversold and undervalued, giving investors the potential for strong capital gains along with the massive dividend. At a low forward price to earnings ratio of 1.46 times and an RSI of around 38 (indicating that the stock may be oversold), investors should take a look at PTNR if they are looking to increase exposure to the wireless communications industry. In order to fully realize the stock’s potential, the company will need to combat increased competition and new regulation and get its earnings per share back on track after it declined 30% in the most recent quarter.
Hudson City Bancorp, Inc. (HCBK)
Like most bank stocks, HCBK has seen its stock price battered by recent market volatility. Many investors have shied away from investing in financials because of the inability to properly value many of the assets on bank’s books. The instability of the financial sector coupled with overall skepticism of the equity markets has left many equity analysts bearish on HCB. Still, with a strong dividend of 5.46%, it may be worth a look. The company’s dividend level remains competitive with competitors like People’s United Financial (PBCT) and Capitol Federal Financial (CFFN), which offer investors 5.37% and 2.80%, respectively.
HCBK currently trades at a forward price to earnings ratio of 7.42 times, lower than competitors and making the stock a potentially cheap buy. The stock bests the forward price to earnings level of all competitors including firms like New York Community Bancorp (NYB) at 10.38 times and Washington Federal (WFSL) at 10.00 times.
With many attractive metrics and a high dividend, HCBK could be a solid low volatility (beta of .73) addition to a value-based investment portfolio.
Energy Transfer Equity, L.P. (ETE)
After a strong run-up in price through July, shares of ETE have fallen closer to March levels. The company’s 7.07% dividend is very solid and among the highest yielding stocks in the oil and gas pipeline industry. Other top dividend yields in the industry include Plains All American Pipeline (PAA) at 6.66% and Kinder Morgan Energy Partner (KMP) at 6.68%.
Should natural gas prices rise, which many analyst expect, companies like ETE could receive a bump in stock price and make stocks in the industry more attractive investors looking for strong total returns. If investors are seeking exposure in this sector, a company like ETE, with a low forward price to earnings ratio of 14.55, minimal debt, and low volatility (beta of .72) might be the way to go.