6 S&P 500 Dividend Contenders To Buy For Safety And Yield

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 |  Includes: AFL, CVX, GE, HBAN, INTC, MSFT
by: Dividend Kings

If you’re in the stock market to become the next Warren Buffett, don’t bother to read on. This article’s focus is high dividend stocks for the conservative investor who has previously found solace in treasuries, certificates of deposit and savings accounts. Using Finviz.com’s stock screener, I selected for US, S&P 500, low beta, high dividend stocks experiencing an average daily volume of 1 million shares or more. To ensure viability, I selected for companies that expressed positive sales growth and return on equity. I also selected for price/earnings ratios below 20, price/earnings growth ratios below 1, and significant institutional ownership. The screen produced six contenders. Now let’s see who made the cut.

AFLAC, Inc. (NYSE:AFL) is a large cap in the financial sector. It is trading at about $39.5, which is 125% of the 52-week low. Possibly best known for its television commercials featuring a hapless duck with the voice of Gilbert Gottfried, it could also be famous for paying a dividend yield of 3.2%. The payout ratio is 30% and our analysis suggests that it is sustainable. Quarterly year-over-year revenue growth is 11.90% and quarterly year-over-year earnings growth is 7.80%. The debt/equity ratio is within everyone’s comfort level at 33.03%. The current ratio, however, is below par at 0.42. The balance sheet doesn’t reveal any unusual year-over-year swings, so we’ll just keep that low current ratio in the back of our minds for now. The stock shows real appreciation possibilities given a price/earnings ratio of 10.34 and price/earnings growth ratio of 0.57. Factor in a price to book of 1.43 and AFLAC has all the earmarks of a value stock.

Chevron Corporation (NYSE:CVX) is a mega cap in the basic materials sector. It is trading at about $96, which is 119% of the 52-week low. You’ve no doubt seen Chevron in the news lately with regard to the 2400 barrel spill suffered at its offshore rig. This pales in comparison with BP’s 10 million barrel Gulf of Mexico leak in 2010, and I suspect that after the appropriate environmental theatre plays out the suspension will end. In any event Chevron’s dividend yield of 3.40% supported by a payout ratio of 22.00% looks safe and sustainable. Quarterly year-over-year revenue growth is 26.20% and quarterly year-over-year earnings growth is 107.80%. The debt/equity ratio is outstanding at 8.01%. The current ratio also exceeds expectations at 1.64. The balance sheet looks impressive and the trends shown are all in the right direction. If I have any criticism it might be that accounting should trim the goodwill valuation in light of the spill. CVX also shows real appreciation possibilities given a price/earnings ratio of 7.10 and price/earnings growth ratio of 0.89. Factor in a price to book of 1.52 and CVX looks like a value stock too!

General Electric Company (NYSE:GE) is another mega cap in the industrial goods sector. It is trading at about $15, which is 105% of the 52-week low. GE Healthcare contributes more than 10% of parent GE’s income and may be facing some serious challenges for market share from Royal Phillips Electronics NV (PHIA) as it just won FDA approval for the PET/MR scanner. This is an unlikely factor to disturb GE’s dividend yield of 3.10%. The pay out ratio is 48.00%. Quarterly year-over-year revenue growth is unavailable and quarterly year-over-year earnings growth is 56.90%. The debt/equity ratio is an appalling 367.69%. The current ratio, however, is above par at 2.35. The balance sheet shows an unusual upward trend in other current liabilities and the cash flow statement shows significant improvement since 2008. The stock shows real appreciation possibilities given a price/earnings ratio of 10.34 and price/earnings growth ratio of 0.57 and a price to book of 1.43.

Huntington Bancshares Inc. (NASDAQ:HBAN) is a mid cap in the financial sector. This regional bank is trading at about $4.9, which is 119% of the 52-week low. On October 11th, 2011, Moody’s upgraded HBAN’s senior unsecured notes to Baa1, 3 grades lower than Spain’s A1 rating, just to put things in perspective. Huntington has an unattractive dividend yield of 1.50%. The payout ratio is 14.00% and analysis suggests that it is sustainable. Quarterly year-over-year revenue growth is 11.90% and quarterly year-over-year earnings growth is 7.80%. The debt/equity ratios and current ratios are absent due to the peculiarities of bank reporting. The balance sheet demonstrates that Huntington has made substantial strides in improving its cash position. The stock shows real appreciation possibilities given a price/earnings ratio of 9.51 and price/earnings growth ratio of 0.66. Toss in a price to book of 0.88 and HBANC walks and talks like a value stock.

Intel Corporation (NASDAQ:INTC) is a mega cap in the technology sector. It is trading at about $23, which is 119% of the 52-week low. Perhaps the biggest news surrounding Intel Corporation of late, is the 9.3 million shares purchased by Berkshire Hathaway (BK.A). I’m reasonably sure Warren didn’t stray out of his comfort zone for Intel’s dividend yield of 3.40%, but…who knows? The payout ratio is 32.00% and our analysis suggests that the dividend is not only sustainable but likely to increase if history is a guide. Quarterly year-over-year revenue growth is 28.20% and quarterly year-over-year earnings growth is 17.40%. The debt/equity ratio is an enviable 15.76%. The current ratio is equally attractive at 2.24. The balance sheet does nothing more than confirm the incredibly strong cash position of the company. The stock shows strong appreciation prospects given a price/earnings ratio of 9.84 and price/earnings growth ratio of 0.83 and a left-handed endorsement from Warren Buffett. Combine that with a price to book of 2.52 and INTC seems to add up as a value stock.

Microsoft Corporation (NASDAQ:MSFT) is a mega cap in the technology sector, trading at about $25, which is 105% of its 52-week low. The brightest news on the horizon for Microsoft is its upcoming release of the Windows 8 operating system. MSFT has a dividend yield of 2.8%. The payout ratio is 23%. The sustainability of this dividend is very, very high. Quarterly year-over-year revenue growth is 7.3% and quarterly year-over-year earnings growth is 6.10%. The debt/equity ratio is beyond reproach at 22%. The current ratio of 2.95, if subject to any criticism, would be that Gates should invest some of the money lying about the company. Repurchase some stock for god’s sake! It’s cheap now. The balance sheet confirms mountains of cash. Better yet, raise the dividend! There is every reason to expect appreciation given a price/earnings ratio of 9.04 and price/earnings growth ratio of 0.91. Price to book is 1.43 and, at the risk of redundancy, value stock!

In my opinion 3 of the 6 stocks that made it through the screen are worthy. Those are Chevron Corporation, Intel Corporation, and Microsoft Corporation on the basis of their overall fundamentals and appreciation potential.

AFLAC, Inc. was given a pass based upon its current ratio of 0.42. I passed on General Electric Company primarily due to the unreasonably high debt/equity position, which is troubling to say the least. I also passed on Huntington Bancshares, Inc. primarily because the dividend yield was just too low to justify the risk associated with equities. I hasten to add that I undertook this analysis for the benefit of those unaccustomed or unwilling to take any significant risk.

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