With U.S. Treasury yields at a low and the Fed’s promise to keep them there for a few years, dividend investing is slowly becoming popular again. Below are five dividend stocks that may help your portfolio. These names were specifically chosen because of their low betas (under 1) and dividend payout ratios below 100%. Here is my analysis:
Eli Lilly & Co. (NYSE:LLY) – LLY’s stock price as stayed relatively stable over the past month. This can be attributed to its low beta of 0.74, indicating that it is less volatile than the market as a whole. LLY currently offers a fair dividend yield of 5.3%, which translates to an annual dividend of $1.96 annually. With a price-to-earnings ratio of only 7.75, the stock can be seen as undervalued. This is compared directly to its competitors GlaxoSmithKline PLC (NYSE:GSK) and Pfizer Inc. (NYSE:PFE), which have price-to-earnings ratios of 11.38 and 7.96, respectively.
One good piece of news in the headlines for LLY is that the FDA approved its drug Cialis to treat symptoms tied to a condition that leads to an enlarged prostate. The drug is currently used specifically for erectile dysfunction, but having the FDA approve the drug for additional conditions should increase sales, further helping its EPS ratio. With this news, it’s possible to see investors become bullish towards the drug manufacturer, and with its current dividend it can even be considered a safe place for value investors.
Medtronic Inc. (NYSE:MDT) – As Peter Lynch taught us, a smart investor needs to pay attention to when insiders purchase their own companies' stock. Even though MDT has a year-to-date loss of over 11% with the stock price, company insiders have been purchasing shares of the stock. While it is illegal to trade based on privileged and private information, there is nobody who will know more about the direction of the company than the insiders. This can be interpreted as the stock price is undervalued and the company expects it to go up in the future.
The company currently has a price-to-earnings ratio of 11.2, which is lower than both the industry and S&P 500, which carry price-to-earnings ratios of 18.5 and 16.6, respectively. With an annual dividend of $.097 annually, the yield is roughly 3%, which is one of the lower yields in this report. With Healthcare Reform still being implemented, most healthcare companies are being seen as stocks to hold rather than buy or sell. Even though insiders are buying the company, MDT may be too volatile for investors looking for a value play.
Pepsico (NYSE:PEP) – Anyone who doesn’t drink Coca-Cola (NYSE:KO) is going to drink PEP. Anyone who has had a product made by the Frito-Lay Company has also supported PEP, as it is one of the most popular and respected brands in the world. The stock itself is not a bad purchase either. The stock has a low beta of 0.54 for anyone who does not like volatility in his or her investments. PEP is fairly generous with its payout ratio of 49% with its dividend of $2.06 annually and earnings per share of $3.93. This translates into a dividend yield of 3.42%.
Compared to its biggest competitor, KO, PEP may not be the strongest investment. KO has the higher earnings per share at $5.37, but also a lower price-to-earnings ratio of 12.18 compared to PEP’s 15.41. Almost all of KO’s financials are stronger than PEP and the other companies in the industry. For an investor, PEP may be more attractive to them because of PEP’s lower stock price paired with the higher dividend. However, management may need to do a better job in creating value within the company. A number of Wall Street analysts suggest that PEP should either change management or break up the company if it continues to lag behind KO, the market leader. PEP may want to see the direction of the economy before it makes any drastic changes.
General Electric Co. (NYSE:GE) – There may not be a person in North America who hasn’t heard of or used a product by GE. Even though the company’s dividend rate is only $0.60, based on its stock price, it translates to a dividend yield of 3.93%. The price-to-earnings ratio of 11.9 is lower than both the industry and the S&P 500. It also has a relatively cheaper stock price than its main competitors Caterpillar Inc. (NYSE:CAT) and Deere & Company (NYSE:DE).
However, this stock is the most volatile on this report at 1.61, also making it generally more volatile than the rest of the market. Although the stock still has not yet recovered from the recession, where it has a stock price of over $40 in 2007, it may still take some time to get back to those levels. Many top executives, including GE's indicate that while the economy most likely will not slip back into a recession, it could remain sluggish and take time to fully rebuild.
AT&T Inc. (NYSE:T) – Whenever someone thinks about leading communications companies, T is usually at the top of the list. Although the company has seen some bearish movement over the last few months, with the stock price declining under $30 per share, it can still be considered a safe investment with a beta of only 0.64. Considering that T has a current price-to-earnings ratio, 8.6, of about half of the S&P at 16.6, many investors could see this as a value play with nowhere to go but up.
The company has higher earnings per share of $3.44 than two of its top competitors, Sprint (NYSE:S) and Verizon (NYSE:VZ), which have earnings per share of -$1.05 and $2.24. If an investor was to choose a company in this industry, then T may be the safer bet. A concern about the company for investors is the amount of debt T has, with a debt/equity ratio of 0.59, where the industry is at 1.00 and the S&P 500 is at 0.99. However, with a dividend yield of 6.08% at $1.72 per share, and the fact that the company continues to expand its coverage, T could be hiding value in the fact that its coverage could grow leading to potential new business.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.