Seeking Alpha
Profile| Send Message|
( followers)  

Too often, investors are urged to pursue certain stocks based on a magic metric, a particularly telling ratio or a catchy headline. In an effort to paint a clearer picture, I chose five stocks, each from a different market sector, to analyze from different angles in a series of articles.

In this first article I look at pricing information and dividend payments to see how they compare with their sector peers and industry averages. In future articles, I will look at earnings and profitability, cash flow, and debt. My conclusion after this detailed analysis is that all of these companies are low-risk buys on a relative valuation basis.

E.I. du Pont de Nemours and Company Inc. (NYSE:DD) – This major diversified chemical manufacturer is currently trading near $44 a share. Over the past year, DD has fluctuated between $37.10 and $57, trading near its highs from late February through early July and reaching its low on Oct. 3. A purchase of 100 shares made ten years ago would be down 3.68 percent today, excluding fees and the reinvestment of dividends. The purchase made 20 years ago would be up 98.17 percent today.

Its price-to-earnings ratio is 11.97. The company’s market capitalization is near $40.7 billion.

DD’s dividend yield is attractive at 3.60 percent or $1.64. Its payout ratio is 45 percent. Whereas DD is not a U.S. Dividend Champion or Dividend All Star as many dividend payers are termed, the company boasts a consistent track record and commitment to regular payments. DD offers a dividend reinvestment and direct stock purchase plan.

DD is trading at a price-to-earnings ratio that is less than its sector average of 13.93, which supports a decision to buy. Its dividend yield also beats the sector average of 2.85 percent. The average price-to-earnings ratio for its industry (major diversified chemicals) is 19.30 and the industry average dividend yield is 2.89 percent.

Its sector peer Freeport McMoran (NYSE:FCX) is currently trading near $34 a share. It has shown some price volatility over the past year, trading near its low of $28.85 on Oct. 3 and near its high of $61.35 (adjusted) in early 2011, just prior to a 2:1 stock split. Ten years ago, FCX closed at $11.62 (adjusted for dividends and splits). A 20-year price comparison was not available. Its price-to-earnings ratio is 5.93, and its market capitalization is over $32 billion.

FCX offers a dividend yield of 2.8 percent or $1. Its payout ratio is 55 percent. The company has paid regular cash dividends for over 15 years. It has paid $0.25 a quarter for the past four quarters. FCX also paid supplemental cash dividends of $0.50 apiece in June 2011, and December 2010. FCX does not offer investors a dividend reinvestment or direct stock purchase plan.

FCX’s price-to-earnings ratio is much less than its sector and the copper industry average of 15.70. Its dividend is also much less than the industry average of 4.2 percent.

FCX is touted as the world’s largest publicly traded producer of copper and molybdenum. It is a significant player in gold production as well. The company boasts operations in key areas in the U.S., Indonesia’s Grasberg mining complex, and in the Democratic Republic of Congo’s Tenke Fungurume district.

Analyst recommendations for DD are distributed fairly evenly among “Hold,” “Buy” and “Strong Buy.” Recommendations for FCX trend toward “Buy/Strong Buy” with some “Holds.”

DD is a very strong and stable company that offers investors a very nice dividend with a track record of consistent payments. Though FCX offers investors opportunities for growth, its performance rests on fewer and riskier factors, such as the price of copper and other commodities with which it is involved, political stability in the DRC, and regulations in Indonesia.

Exxon Mobile (NYSE:XOM) - This oil and gas exploration and production giant is currently trading near $74 a share. With a 52-week range of $67.03 to $88.23, it has shown relative stability in price over the past year. It traded near the lower end of its range in late September and near the higher end in middle March and late July. A purchase of 100 shares placed ten years ago at $38.44 would be up 92.25 percent to $7,390 today, not including reinvested dividends. The same purchase 20 years ago at $14.44 would be up 411.86 percent to $29,560. Its price-to-earnings ratio is 8.92, and its market capitalization is over $354 billion.

XOM’s dividend yield is 2.50 percent or $1.88. The company is a five-star Dividend All Star and a U.S. Dividend Champion, having increased its payment for 29 consecutive years. Its payout ratio is 22 percent. XOM offers a direct stock purchase/dividend reinvestment plan.

Yahoo! Finance includes oil and gas companies in the basic materials sector, though I have listed it as its own sector for this series. XOM is trading at a lower price-to-earnings average than the basic materials sector, which is nice for buyers, but its dividend is also lower. Its is below the integrated oil and gas industry average price-to-earnings ratio of 10.20 and average dividend yield of 3.60 percent.

XOM’s sector peer Schlumberger Ltd. (NYSE:SLB), which provides oilfield services, seismic imaging services, drill bits, and more, is currently trading just over $66 a share. It has shown some price volatility, ranging from $54.79 to $95.64 over the past 52 weeks. SLB reached its low on October 3 and traded near its high in late March and July. Its price-to-earnings ratio is 19.62. Had an investor purchased 100 shares ten years ago at $23.74, the investment would now be worth $13,274, or an increase of 179.57 percent. This takes into account a 2:1 split. The same purchase made 20 years ago for $15.66 would now be worth $26,548, or 400 shares. This is an increase of 323.92 percent.

The company’s market capitalization is over 89 billion.

SLB’s dividend yield is 1.50 percent or $1 a share. Its payout ratio is 28 percent. The company has paid dividends since 1957. It does not offer a direct stock purchase/dividend reinvestment plan.

SLB, which represents the oil and gas equipment and services industry, is trading at a higher price-to-earnings ratio than its industry average of 14.96. Its dividend yield is also less than the average of 2.74 percent.

Analysts recommendations for XOM trend toward “Hold” with some “Buys,” “Strong Buys,” and a couple of “Underperforms.” Recommendations for SLB trend toward “Strong Buy” and “Buy” with a handful of “Holds.”

XOM is a nice investment for investors seeking very low-risk, stable holdings. Its dividend is consistent. SLB is trading at a bit of a premium to its earnings, though it remains a very attractive investment with a nice price and dividend history for investors with higher risk tolerance and who are seeking the possibility of greater returns.

Caterpillar (Inc.) – This manufacturer of farm, mining, and construction equipment is currently trading near $87 a share. It has shown some price volatility over the past 52 weeks, ranging from $67.54 to $116.55. It reached its low in early October and traded near its high in April, May and July. A purchase of 100 shares ten years ago at $24.32 would be worth 200 shares or $17,344 today. This is a 256.58 percent increase. A purchase of 100 shares 20 yeas ago (at $5.09 a share) would total 800 shares or $69,376 today for an increase of 1,602.46 percent. Its price-to-earnings ratio is 13.25. The company’s market capitalization is over $56 billion.

Its dividend yield is 2 percent or $1.84, and its payout ratio is 27 percent. CAT has paid a dividend every year for over 80 years and has increased its payment yearly for 10 years. CAT offers a direct stock purchase/dividend reinvestment plan.

CAT is trading just under the industrials sector average price-to-earnings ratio of 13.32. The sector average dividend yield is 2.60 percent. Within its industry, farm and construction machinery, CAT fares better compared with the average price-to-earnings ratio of 17.60 and average dividend yield of 1.63.

Its sector peer General Electric (NYSE:GE), which makes wind turbines, generators, nuclear reactors, jet and aircraft engines, medical imaging equipment, and more, is currently trading near $15 a share. It traded near its 52-week low of $14.02 on October 3 and near its 52-week high of $21.65 in January and March. Ten years ago, GE closed near $29.75 (adjusted). It closed near $3.22 (adjusted) 20 years ago.

The company’s share price-to-earnings ratio is 11.25, and its market capitalization is over $155 billion.

GE’s dividend yield is 4.10 percent or $0.60. Its payout ratio is 48 percent. The company has paid a quarterly dividend every quarter for more than 100 years. GE offers a direct stock purchase/dividend reinvestment plan.

GE is trading at a more noticeable discount to the sector average. GE’s dividend is also higher than the sector average. The average price-to-earnings ratio for diversified machinery industry is 12.30 and the average dividend yield is 3.13 percent.

Analysts recommendations for CAT and GE both trend toward “Buy/Strong Buy” and “Hold.”

CAT and GE are both very attractive stocks for income portfolios and buy-and-hold portfolios. Both companies offer diversified business segments, commitment to dividends and opportunities for growth in international and emerging markets.

Southern Company (NYSE:SO) – The electrical utility that operates in the southeastern U.S. is currently trading near $42 a share. It has also shown some stability in price, with a 52-week range of $35.73 to $43.97. It traded near its lower end of the range in late 2010 and early 2011 and has been trading near the higher end since early October. Ten years ago SO closed near $23 a share. It closed near $30 a share 20 years ago. SO’s price-to-earnings ratio is 17.34, and its market capitalization is over $36 billion.

SO’s dividend yield is 4.40 percent or $1.89. Its payout ratio is 77 percent. The company has increased its payment for the past five consecutive years and is ranked a three-star Dividend All Star. SO does not offer a direct stock purchase/dividend reinvestment plan.

SO compares with the utilities sector average price-to-earnings ratio of 15.58 and the average dividend yield of 4.15, so it is trading at a premium and offers a higher-than-average dividend. The electric utilities industry average price-to-earnings ratio is 15.60, and the industry average dividend yield is 3.91 percent.

Its peer Wisconsin Energy Corp. (NYSE:WEC) is currently trading near $32 a share. As is typical with utility companies, it has also shown price stability over the past year, ranging from $27 to $33.63. It reached its low in August and traded near its high in October and early November. Ten years ago, WEC closed just over $11 a share. It closed near $12.20 years ago. Its price-to-earnings ratio is 14.04, and its market capitalization is almost $7.5 billion.

WEC’s dividend yield is 3.30 percent or $1.04. As a three-star Dividend All Star, it has increased its payment for the past five consecutive years.

WEC’s price-to-earnings ratio is less than the sector average but higher than the diversified utilities industry average of 13.90. Its dividend yield is less than both its sector average and industry average of 4.45 percent.

Analyst recommendations for SO trend toward “Hold” with some “Strong Buys” and “Buys.” Recommendations for WEC follow a similar pattern, adding a “Sell” to the mix.

Both of these utility companies offer dividend investors attractive, consistent dividend payments with preservation principle without the price volatility.

Procter and Gamble (NYSE:PG) – This consumer products manufacturer whose product line-up includes Pampers diapers, Gillette razors, Crest toothpaste, Duracell batteries and more is currently trading near $62 a share. It is a relatively stable company, ranging in price from $57.56 to $67.72 over the past 52 weeks. It traded near the lower end of its range in mid March and again in early to mid August. It traded near the higher end of its range in late January, the middle of May, and again in late October. A purchase of 100 shares ten years ago at a price of $39.23 would be worth 200 shares today or $12,438, not including the reinvestment of dividends. This is a 58.55 percent increased. The same purchase made 20 years ago at a price of $9.89 would be worth 800 shares or $49,752. This is a 528.78 percent increase. Its price-to-earnings ratio is 15.78, and its market capitalization is almost $171 billion.

Its dividend yields is 3.40 percent or $2.10. Its payout ratio is 51 percent. The company has increased its divided every year for the past 57 consecutive years. It is both a U.S. Dividend Champion and five-star ranked Dividend All Star, offering a better bet than consumer goods alternatives.

PG’s price-to-earnings ratio is less than its consumer goods sector average of 22.76 and the personal products industry average of 16.10. Its dividend yield is higher than the sector average of 2.05 percent and the industry average of 3.17 percent.

Analyst recommendations trend toward “Strong Buy/Buy,” though a handful recommend “Hold” or “Underperform.”

Its sector peer Kraft Foods (KFT) is currently trading near $35 a share. It is also a stable stock, having ranged in price from $29.80 to $36.30 over the past 52 weeks. KFT traded near the lower end of its range earlier this year and reached the higher end in early July and again earlier this month. Had an investor purchased 100 shares ten years ago at $33.71, the holding would be up 3.62 percent to $3,493 today. A 20-year price history was not available. Its price-to-earnings ratio is 19.03, and its market capitalization is almost $62 billion.

KFT’s dividend yield is 3.40 percent or $1.16. Its payout ratio is 64 percent. Though it has not increased its dividend since the second quarter of 2008, the company still boasts a long history of regular dividend payments.

KFT’s price-to-earnings ratio is slightly less than both the sector average and the major diversified food industry average of 21.20. Its dividend yield is higher than its sector average but lower than its industry average of 3.69 percent.

Analyst recommendations also trend toward “Strong Buy/Buy” with some “Holds.”

PG and KFT, which are both stable companies with respected brands and global presence, are favorites with dividend investors, though PG appears to be the better value and performer.

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

Source: How 5 Dividend Income Stocks Size Up Against Competitors