Seeking Alpha
Profile| Send Message|
( followers)  

In times of high market volatility, many investors will move towards high dividend stocks. This article will review six stocks with yields of over 5% and market caps of over $1 billion. Perhaps one or more of these stocks would be a good fit for your portfolio. My analysis concludes that all of these stocks should be avoided, despite their high yields.

Pitney Bowes Inc. (NYSE:PBI) PBI has a market cap of $3.46 billion with a price to earnings ratio of 8.36. The stock has traded in a 52 week range between $17.33 and $26.36. The stock is currently trading around $17. The company reported third quarter revenues of $1.3 billion compared to revenues of $1.36 billion in the third quarter of 2010. Third quarter net income was $172 million compared to net income of $444 million in the third quarter of 2010.

One of PBI’s competitors is Siemens AG (SI). SI is currently trading around $90 with a market cap of $78.86 billion and a price to earnings ratio of 9.71. SI pays a dividend which yields 2.9% versus PBI whose dividend yields 8.3%.

PBI is an international provider of mail processing equipment. The company has been profitable in every year for the last decade. In 2010, the company reported net income of $310 million which was a 43% decrease, from 2009’s net income of $444 million. PBI has been excellent at paying dividends. The company has paid quarterly dividends since 1982 and has increased its dividend five times by 15% over the last five years. PBI has seen its earnings decrease because it is losing direct mailing business to internet advertisers. In the third quarter, the company revenues were below estimates due to a slowdown in its business services and equipment sales. Investors are concerned about PBI’s future earnings prospects and the stock is down by 22.7% over the last 52 weeks. PBI has been unable to replace the revenues that it is losing to internet advertisers, and it is likely to see it earnings continue to decrease. Investors in PBI may find that their dividend income will not offset the losses to their capital investment. I rate PBI as a hold.

RR Donnelly & Sons Company (NASDAQ:RRD) RRD has a market cap of $2.53 billion with a price to earnings ratio of 11.81. The stock has traded in a 52 week range between $12.90 and $21.34. The stock is currently trading around $13.48. The company reported third quarter revenues of $2.6 billion compared to revenues of $2.4 billion in the third quarter of 2010. Third quarter net income was $158 million compared to net income of $53 million in the third quarter of 2010.

One of RRD’s competitors is Quad Graphics Inc. (NYSE:QUAD). QUAD is currently trading around $13.35 with a market cap of $625.59 million and a negative price to earnings ratio. QUAD pays a dividend which yields 5.6% versus RRD whose dividend yields 7.3%.

RRD is one of the world’s largest printing companies. The company increased its year-over-year third quarter revenues by 8% and its net income by 198%. RRD has paid quarterly dividends since 1985 and has paid its current $1.04 annual dividend since 2003. The company’s stock price is down by 16% over the last 52 weeks and 14% over the last month. I believe that RRD’s poor stock performance is a result of the overall market conditions and is not due to the company’s performance. I would consider buying the stock when the price begins to move up. For now, I rate RRD as a hold.

Federated Investors Inc. (NYSE:FII) FII has a market cap of $1.57 billion with a price to earnings ratio of 9.76. The stock is trading in a 52 week range between $15.05 and $28.57. The stock is currently trading near its 52 week low at around $15. The company reported third quarter revenues of $214 million compared to revenues of $243 million in the third quarter of 2010. Third quarter net income was $38 million compared to net income of $42 million in the third quarter of 2010.

One of FII competitors is Black Rock Inc. (NYSE:BLK). BLK is currently trading around $151 with a market cap of $27.06 billion and a price to earnings ratio of 94. BLK pays a dividend which yields 3.5% versus FII whose dividend yields 6.3%.

FII is an asset management company. FII has paid quarterly dividends since 1998 and has increased its dividend three times by 60% over the last five years. The company has been profitable in each of the last ten years, but in recent quarters its earnings have decreased. In 2010, the company’s net income decreased by 23%. The company’s year-over-year third quarter revenues were down by 13% while its net income was down by 9%. The stock price has been hit hard because of the decrease in earnings and is down by 36.8% over the last 52 weeks. The company missed third quarter projected earnings on October 27th, and the stock price has gown down by 35% in the month since the miss. The company would likely see earnings increase if the economy gets better, but it has no other catalyst that could significantly increase its earnings. I like the dividend, but would not consider buying this stock until the stock price stabilizes. I rate FII as a hold.

Hudson City Bancorp Inc. (NASDAQ:HCBK) HCBK has a market cap of $2.54 billion with a negative price to earnings ratio. The stock is trading in a 52 week range between $5.09 and $13.26. The stock is currently trading near its 52 week lows at around $5.10. The company reported third quarter revenues of $527 million compared to revenues of $688 million in the third quarter of 2010. Third quarter net income was $84 million compared to net income of $124 million in the third quarter of 2010.

One of HCBK’s competitors is the Bank of America Corporation (NYSE:BAC). BAC is currently trading around $5 with a market cap of $52.4 billion and a negative price to earnings ratio. BAC pays a dividend which yields 0.8% versus HCB’s whose dividend yields 6.1%.

HCBK is a savings and loan institution that has its headquarters in New Jersey. The company has increased its net income in each of the last ten years but has seen its profits slip in recent quarters. Its year-over-year third quarter revenues decreased by 30% while its net income decreased by 48%. In the first three quarters of 2011, the company has reported net income of $-375,453 million, and it is on course to report negative annual earnings for the first time in more than a decade. Not surprisingly, the stock price has been hit hard and is down by 55.5% over the last 52 weeks and 15% over the last month. HCBK should be able to continue making dividend payments, but its investor’s capital losses could far exceed their dividend income. I would not consider purchasing shares of HCBK until the stock price stabilizes. I rate HCBK s a hold.

Avon Products Inc. (NYSE:AVP) AVP has a market cap of $6.93 billon with a price to earnings ratio of 9.46. The stock has traded in a 52 week range between $16.09 and $31.60. The stock is currently trading right at its 52 week low near $16. The company reported third quarter revenues of $2.7 billion compared to revenues of $2.6 billion in the third quarter of 2010. Third quarter net income was $164 million compared to net income of $166 million in the third quarter of 2010.

One of AVP’s competitors is Revlon Inc. (NYSE:REV). REV is currently trading around $14 with a market cap of $716.99 million and a price to earnings ratio of 2.3. REV does not pay a dividend versus AVP whose dividend yields 5.6%.

AVP is the largest door to door seller of personal beauty products in the world. The company has been profitable for many years and has a strong record of paying dividends. The company has paid quarterly dividends since 1982 and over the last five years it has increased its dividend five times by 31%. The company’s earnings have slipped in recent quarters, and its year-over-year third quarter revenues and net income were down. Also, the company’s stock has performed abysmally. On October 27th, the SEC announced that it would investigate AVP on charges that it bribed foreign officials. Since that time, the stock price has dropped by 41%. With the stock of AVP sinking rapidly, and the uncertainty surrounding the SEC investigation I cannot recommend AVP. The stock is dirt cheap, and there have been unconfirmed rumors that AVP could be a buyout target, but for now, I rate AVP as a hold.

Eli Lilly & Company (NYSE:LLY) LLY has a market cap of $39.63 billion with a price to earnings ratio of 8.51. The stock has traded in a 52 week range between $33.46 and $39.78. The stock is currently trading around $36. The company reported third quarter revenues of $6.1 billion compared to revenues of $5.6 billion in the third quarter of 2010. Third quarter net income was $1.2 billion compared to net income of $1.3 billion in the third quarter of 2010.

One of LLY’s competitors is GlaxoSmithKline plc. (NYSE:GSK). GSK is currently trading around $42 with a market cap of $206.3 billion and a price to earnings ratio of 41.29. GSK pays a dividend which yields 5.1% versus LLY whose dividend yields 5.4%.

LLY manufactures and sells pharmaceutical products. The company has provided its investors with relatively steady earnings and a strong dividend. The company has paid a quarterly dividend since 1982 and has increased its dividend three times by 22.5% over the last five years. The company’s year-over-year third quarter revenues were up by 8.9% while its net income was down by 8%. The stock price has been relatively steady and is up by 5% over the last 52 weeks. The big problem for LLY comes from the patent expirations on its two largest revenue producing drugs Zyprexa and Cymbalta. The patent for Zyprexa expired in October, and Cymbalta’s patent will expire in 2013. The company has 66 new drugs in its clinical pipeline, but it is questionable whether any of these drugs will be able to replace the revenues lost from the two that are losing patents. LLY has been a strong company, but I would hold off on purchasing its stock, until it becomes clear how the patent expirations will affect is revenues. I rate LLY as a hold.

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

Source: 6 High Yield Stocks To Avoid For Now