One of the secrets to beating the market is to coat-tail successful investors. In this article, let’s take a look at the dividend income stock picks of Jim Cramer for his charitable trusts. These stocks are facing temporary setbacks that have caused their share prices to decline. As soon as the overhang in the stock price disappears, my analysis shows that these stocks should outperform the market over time.
The telecommunications industry is in the midst of a strong tailwind – there's sure to be higher demand for mobile data in the future. Telecommunications is a toll business. Consumers need mobile plans for their new smartphones to work. A good idea in this sector is AT&T Inc. (T). It’s one of the leading US telecommunications companies in the United States. This translates to a solid economic moat. In fact, its financial track record is good. During the last 5 years, it has grown its revenues by 23% a year and earnings per share by 17.77%. It has also rewarded its shareholders with a dividend payout of 87%.
For the year, shares have declined by 4.42%. Investors are not happy with the position of the Fed on its proposed $39 billion deal to acquire T-Mobile USA. I believe that once the deal pushes through, it will be a worthy contender to becoming the leading carrier in the United States. The stock is currently trading at 11.27 times next year’s earnings. It also carries a dividend yield of 6%. Other telecommunication stocks are trading higher. Verizon Communications (VZ) trades at 14.19 times earnings and has a dividend yield of 5.50%. On the other hand, CenturyLink Inc. (CTL) is valued at 13.85 times earnings and carries a dividend yield of 7.90%. It seems that the undervaluation is not warranted, as AT&T has a better financial profile. It has net profit margins of 9.53% and return on equity of 10.33%, higher than the industry’s margins of 7.05% and return on equity of 7.94%. Cramer has touted this stock before, and I would not be surprised if its shares will be re-rated soon.
Chevron Corp. (CVX) is another good pick in an industry with strong economic prospects. It is an integrated oil company that has a strong foothold globally. Recently, there has been a sell-off on news that the Brazilian government will charge Chevron $51 million for its role in an oil spill in the Frade field offshore. However, the stock is still up by 5.67% for the year. The recent pull-back in shares is a good opportunity for investors to buy a quality company like Chevron. The fine appears insignificant, if you note that the company generates $40 billion in cash flows a year.
The stock is currently trading at 7.50 times next year’s earnings and has a dividend yield of 3.40%. This valuation is low for a company that has a solid financial position and generates tons of cash flow. Its competitors are valued higher. Exxon Mobil (XOM) trades at 9.04 times earnings and carries a dividend yield of 2.4%. Hess Corp. (HES) is valued at 10 times earnings and has a dividend yield of 0.70%. The company announced that there are no new oil leakages. As soon as it fixes the mess in the Brazilian oilfield, there’s no reason why the stock shouldn't be valued higher.
If you’re looking for a diversified industrial company, you can take a look at E.I. du Pont de Nemours and Company (DD) or Dupont. Its historical track record is good. It has grown its revenues by 2.81% a year for the last 5 years. It has also increased its earnings per share by 9.64% annually during the same period. This may not appear spectacular, but I believe the stability of its earnings power should look attractive to investors. In turn, dividends have also grown by 2% a year for the last 5 years.
The stock is down by 8.98% for the year. The reason is that investors expect a margin squeeze from higher titanium ore costs. The market for these ores has constrained supply. Thus, it is expected that its costs will increase in the future. The stock is currently trading at 10.41 times next year’s earnings and has a dividend yield of 3.60%. In contrast, Dow Chemical (DOW) is valued at 8.70 times earnings and carries a dividend yield of 4%. Monsanto Co. (MON) trades at 17.25 times earnings and has a dividend yield of 1.70%. Investors will have to wait for the company to report improvement in earnings outlook before they see the stock surge. It may take a while as the margin squeeze is an overhang to the stock price.
Freeport-McMoran Copper & Gold (FCX) is another good bet in the commodities space. The main thesis is that a growing Chinese economy would need more copper for its infrastructure projects. Investors are worried that Chinese economy may already be overheated. This has brought copper prices to levels similar to those during the financial crisis in previous years.
For the year, Freeport’s shares have also declined by 41%. The recent worker strike in its Indonesia mine is increasing investor worries. The stock is currently trading at 7.45 times 2012 earnings and has a dividend yield of 2.80%. Southern Copper Corp. (SCCO) is valued at 9.88 times earnings and carries a dividend yield of 9.70%. On the other hand, BHP Billiton (BHP) is valued at 11.48 times earnings and has a dividend yield of 3.20%. The long term supply of copper is still scarce and demand from emerging markets has increased. It might be a good idea to accumulate shares of Freeport while they are still cheap. Once copper prices recover, Freeport shares would definitely follow.
Investors who love consumer stocks might find H.J. Heinz Co. (HNZ) interesting. It has a portfolio of products that have solid competitive advantages in the space in which it operates. Its 5-year historical financial performance speaks for itself. Revenue growth is at 4.37% a year for the period. This translates to earnings per share growth of 18.76% a year for the past 5 years. The company has also rewarded its investors by paying out 62% of earnings a year. For the last 5 years, it has grown its dividends by 8.45% a year. Investors can be assured that dividend payment will be stable for the next 5 years or so.
The stock has increased by 1.17% for the year. Its flat stock price performance is attributed to the outlook of its revenue in the succeeding quarters. The company’s management believe that it can still grow despite the challenging environment. It says that the main growth driver will be emerging markets and global ketchup sales. The stock is currently trading at 13.80 times next year’s earnings and carries a dividend yield of 3.80%. Global consumer stocks like Kraft Foods (KFT) and General Mills (GIS) are valued higher. Kraft trades at 18 times earnings and has a dividend yield of 3.40%. Meanwhile, General Mills is valued at 14 times earnings and carries a dividend yield of 3.20%. The quarterly reports are temporary setbacks for the company. The market will soon realize that it is doing its best to diversify its sales outside the United States. In the long haul, investors should be rewarded by buying a quality company like Heinz that trades at fairly attractive levels.