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 (NASDAQ: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 (NYSE: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 (NYSE: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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.