I am expecting more of 2011 in 2012. The global financial burden will take some time before we return to a “normal” investing market. I am thinking that 2012 will be the year of the dividend. Rising dividends protect stock prices in bear markets. Dividend stocks are by nature defensive stocks. But a rising dividend acts like ballast and prevents the stock price from falling too far. A dividend payment signals management's intention to reward investors for offering their capital. As a stock analyst, I place more weight on the dividend payments than any other statistic when I size up a company. A strong dividend payment is a sign of a healthy business. Earnings can be manipulated but dividends do not lie. I have identified 9 stocks I consider the best dividend stocks for 2012. This is part 1 of the article.
Intel (INTC) dominates the global microprocessor industry. Intel is one of the most financially strong institutions on Earth (including all the banks in the world). It has a double-A-plus balance sheet, with $21.8 billion in cash, stocks and bonds, versus just $13.7 billion in total debt. Intel's pretax earnings cover its interest expense more than 44 times over. INTC is projected to grow EPS 4.5% in 2012. INTC appears undervalued based on its Price/Cash Flow (TTM) of 7.0, which is less than the Semiconductors & Semiconductor Equipment Average value of 17.42.
INTC is trading at $24.29 and the stock price has done nothing over the last 10 years but its value is the dividend growth. Today, Intel pays an annual cash dividend of $0.84 per share compared with $0.08 in 2003. At just a 3.5% yield, it doesn't look big now. But it has raised its dividend every year for the last eight years in a row. Intel's dividend has a historical growth rate of 28.35% per year. But maybe Intel's dividend growth slows. Big companies like Intel don't grow fast. Intel's last dividend increase was 16.7%, from $0.18 to $0.21 per quarter in 2011. At that growth rate, you will double your dividend yield in six years at today's cost.
Altria (MO) is the best-performing stock in the history of U.S. stock markets. If you had invested $1,000 in this company in 1925, you would have been worth $250 million in 2003. MO dominates its market with a 56% market share and the product it sells is one of the most profitable in the history of capitalism. This company turns about 20% of revenue into free cash flow, even after paying out 50% of its revenue in excise taxes. MO appears fairly priced based on its Price/Cash Flow (TTM) of 15.41 compared with the industry average of 14.3.
Today, MO pays an annual cash dividend of $1.64 per share for a dividend yield of 5.9%. But it has raised its dividend every year for the last eight years in a row. MO's dividend has a historical growth rate of 12.6% per year. MO's last dividend increase was 7.9%, from $0.38 to $0.41 per quarter in 2011. At that growth rate, you will double your dividend yield in eleven years at today's cost. It hasn't cut its dividend in 40 years.
McDonald's (MCD) owns one of the world's most startling collections of commercial property. It pays a large annual dividend of 3.0% that's grown every year for almost three decades. Most people don't know this, but McDonald's is a landlord, not a burger business. Franchisees flip the burgers. McDonald's owns the property and simply collects royalty checks from the tenants every month. This is what makes McDonald's such a great income play.
MCD appears normally valued based on its Price/Earnings (TTM) of 18.33, which is between the Consumer Discretionary sector’s top and bottom quintile values of 21.88 and 12.58, respectively. MCD has a historical dividend growth rate of 14.98% but it is 26.48% over the last five years. In the 4th quarter 2011, MCD raised its quarterly dividend from $0.61 to $0.70, a 14.75% increase. At that growth rate, you will double your dividend yield in six years at today's cost of $92.74.