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The market rebounded nicely this past week and pushed many companies out of their 52-week low range. Despite that, there are some great bargains still to be had. The complete list of 26 current and past dividend increasing stocks can be found here.

Symbol Name Price % Yr Low P/E EPS Dividend Yield Payout Ratio
WAG Walgreen Co. 32.9 2.81% 11.19 2.94 0.90 2.74% 31%
PEP PepsiCo Inc. 62.09 4.79% 15.80 3.93 2.06 3.32% 52%
BDX Becton, Dickinson 73.85 4.83% 12.41 5.95 1.64 2.22% 28%
AROW Arrow Financial Corp. 22.73 5.28% 12.09 1.88 0.97 4.27% 52%
FRS Frisch's Restaurants 19.52 5.34% 10.44 1.87 0.64 3.28% 34%

Watch List Summary

Topping our list this week is Walgreen Co. (WAG). Walgreen Co. is currently yielding 2.74% with a conservative P/E ratio of 11. Earnings are expected to grow 11% through 2012. With the stock being so close to the one year low, it appears that the risk-reward may have turned in favor of the investor. We have bought a 10% position of WAG as of Friday October 14th with the expectation to purchase the exact same dollar amount when the price falls by 20% or more. Like moths to a flame, we're drawn to the compounding consistency of Walgreen as demonstrated in the performance of the stock against Apple (AAPL) since Apple's IPO in 1980. In the chart below (click to enlarge), only recently has AAPL been able to exceed the total return of Walgreen but by a relatively narrow margin.

Right behind Walgreen Co. is the well known consumer name, Pepsi Co. (PEP). Pepsi Co. has been on our list for some time now so we'll have to see how much longer it will stay. Analysts expect Pepsi to grow its bottom line by 7% next year. Although times may be different, we can't help but remind investors of Jeremy Siegel's seminal piece "The Nifty Fifty Revisited" (found here). In that piece, Siegel reviews the performance of the "Nifty Fifty" at their peak price in 1972 before their crash. Pepsi Co. (PEP), from the peak in 1972, produced an annualized return of 16.03% in the period from 1972 to 1995.

Becton, Dickinson (BDX) is now on our watch list after our first recommendation of the stock on May 4, 2009. According to Edson Gould’s altimeter (chart below, click to enlarge), BDX is now selling below the price paid by Warren Buffett relative to the dividend and subsequent dividend increases. BDX has a dividend payout ratio of 28% which indicates that earnings could fall by 50% without imperiling the company’s ability to make good on their dividend.

Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from October 8, 2010 and have checked their performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2010 Price 2011 Price % change
CL Colgate-Palmolive Co. 74.90 91.99 22.82%
CAG ConAgra Foods, Inc. 21.87 25.47 16.46%
NTRS Northern Trust Corp. 48.35 36.63 -24.24%
WST West Pharmaceutical 35.11 38.3 9.09%
BBT BB&T Corp. 23.58 22.36 -5.17%
Average 3.79%
DJI Dow Jones Industrial 11,062.78 11,573.34 4.62%
SPX S&P 500 1,176.19 1,215.65 3.35%

click to enlarge

The performance of the top five from last year, at 3.79%, was between the Dow's 4.62% and the S&P 500's 3.35%.

Three of the top five stocks from last year performed above the level of the S&P 500 and Dow Jones Industrial Average. Colgate-Palmolive (CL) cranked out a return of over 22% despite sporting a subpar dividend yield of 2.83%. ConAgra (CAG) managed to generate a return of 16% with a dividend yield of 4.21% at the time the list was generated. Northern Trust (NTRS) got hammered with a decline of -24.24%.

Disclaimer: On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. We suggest that readers use the March 2009 low (or the companies' most distressed level in the last 2 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. A minimum of 50% decline or the November 2008 to March 2009 low, whichever is lower, would fit that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.

Source: Top 5 Dividend Stocks To Consider Now