5 Dividend Dynamos That Don't Disappoint

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Includes: CVX, ETN, ITW, UTX, XOM
by: Dividend Kings

Today I am going to make the case for 5 companies that offer excellent prospects for the investor with a penchant for dividends. I’ll analyze from a value investor’s perspective and lay out my rationale. I’ll also contrast these companies with rivals to put my points in perspective.

Chevron Corporation (NYSE:CVX) is selling at about $103.62 per share. This large cap ($206.36 billion) in the basic materials sector has trailing twelve month price/earnings of 7.68 making it a clear-cut bargain. A price/earnings growth ratio at 1.16 and a price to book of 1.71 confers value stock status on this issue. Chevron’s return on equity is a bodacious 24.20% and quarterly year-over-year revenue growth of 26.20% coupled with quarterly year-over-year earnings growth of 107.80% serves to confirm investment dollars well spent. A debt/equity ratio of a mere 8.01 and a current ratio of 1.64 illustrates fiscal soundness and excellent financial discipline. CVX rewards shareholders with a 2.10% dividend yield and offers assurance of continuity in a payout ratio of 22%. The 5 year average dividend yield of 3.10 shows management’s commitment to shareholders with respect to dividend.

Now we look to rival BP plc (NYSE:BP), which is being offered at about $41.63 per share. Also in the basic materials sector, BP is a large cap ($131.45 billion) with trailing twelve month price/earnings ratio of 5.76 but will it prove to be a better bargain than CVX? Not in terms of the price/earnings growth ratio which is somewhat higher at 1.59. BP plc wins the price to book comparison, standing at 1.20, but falls just short of CVX with a return on equity of 23.54%. BP’s quarterly year-over-year revenue growth is 35.10% and quarterly year-over-year earnings growth is 174.9%, besting CVX on both counts.

BP does not favorably compare with Chevron on the debt/equity ratio reporting in at 41.06, more than 5 times Chevron’s result. BP’s current ratio is 42.61%, poorer than Chevron at 1.64. BP offers up a dividend yield of 4.00% with a payout ratio of 23%, placing BP plc ahead of Chevron. BP also leads the 5 year average dividend yield race at 5.50%. In this comparison, financial strength seems to favor Chevron, but growth, earnings and yield favor BP. The only reasonable conclusion one can draw, is either of these companies would enhance your portfolio.

Eaton Corporation (NYSE:ETN) trades at about $43.13 per share. This large cap ($14.41 billion) in the industrial goods sector sports a trailing twelve month price/earnings ratio of 11.68. The price/earnings growth ratio is an even 1.00 and price to book is an attractive 1.87. ETN’s return on equity is 199 basis points above the minimum threshold I screened for at 16.99%. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth are 15.50% and 36.20% respectively. The company’s debt/equity ratio made the cut at 48.74% and the current ratio is a comfortable 1.52. The dividend yield of 3.20% is supported by a payout ratio of 35%. A 5 year average dividend yield of 2.70% suggests a commitment to shareholders likely to continue into the future.

An analysis of competing Johnson Controls Inc. (NYSE:JCI), which trades at about $29.99 per share, with a market cap of $20.4 billion, reveals a trailing twelve month price/earnings of 12.72 and a fractional price/earnings growth ratio of 0.61. Johnson’s price to book is 1.85 and return on equity is 15.96. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth are 19.30% and 19.80% respectively. JCI’s debt/equity ratio is 45.16 and the current ratio is 1.11. Our competitor provides a dividend yield of 2.20% against a payout ratio of 27% and 5 year average dividend yield of 1.80%. Again, a tight race, but this one comes out in favor of Eaton in light of its superior earnings and debt posture. The greater yield is a factor too, of course.

Exxon Mobil Corporation (NYSE:XOM) is a large cap ($366.00 billion) in the basic materials sector trading at $80.53 per share. The trailing twelve month price/earnings ratio is 9.72 and the price/earnings growth ratio is 1.08. Exxon’s price to book is 2.48 and return on equity is a robust 26.85%. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth stand at an impressive 31.50% and 40.50% respectively. The debt/equity ratio is equally impressive at 10.33 while the current ratio falls 7 basis points short of expectations. Exxon’s dividend yield is 2.30% on a payout ratio of 22% and the 5 year average dividend yield is 2.00%, suggesting a potential for dividend increases in the future.

Rival ConocoPhillips (NYSE:COP), another large cap ($92.74 billion) in the basic materials sector, is trading at about $69.85 per share which is almost 9 times trailing twelve month earnings. COP’s price/earnings growth ratio is -12.87, while price to book is 1.41. Conoco’s return on equity is 16.36%. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth are 35.70% and -14.40% respectively. COP’s debt/equity ratio and current ratio are 41.68 and 1.12 respectively. That brings us to our focus, dividend yield, which is 3.80% with a payout ratio of 32%. The 5 year average dividend yield is 2.90% demonstrating that management is open to increasing dividends to shareholders. In this match-up I have to choose XOM based upon the more favorable price/earnings growth ratio and the year-over-year earnings growth differential.

Illinois Tool Works (NYSE:ITW), a large cap ($22.43 billion) in the industrial goods sector, is trading at about $46.43 per share and has a trailing twelve month price/earnings ratio of 11.65. The price/earnings growth ratio is a fractional 0.90 and price to book is 2.28. ITW’s return on equity is a healthy 21.16%. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth are 16.20% and 20.30% respectively. Debt/equity and current ratios are 46.32 and 2.02 respectively. Our subject’s dividend yield is 2.10% supported by a payout ratio of 34%. The 5 year average dividend yield is 2.50%.

Transitioning to rival Cooper Industries plc (CBE), a large cap ($8.25 billion) in the conglomerates sector, trading at about $52.20 per share, which is 10.73 times trailing twelve month earnings. The price/earnings growth ratio is an even 1.00 and price to book is 2.39 with return on equity reported at a respectable 19.11%. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth are 12.00% and 13.10% respectively. Cooper’s debt/equity ratio is 41.35 and the current ratio is 2.09. Dividend yield is reported at 2.20 with a payout ratio of 23%. The 5 year average dividend yield is 2.20%, suggesting management resistance to further dividend increases.

This match-up favors ITW in terms of revenue and earnings growth. ITW’s slightly lower dividend is offset in my view by its superior financial strength and market presence.

United Technologies Corp. (NYSE:UTX) trades at about $74.20 per share. This conglomerate has a market cap of $67.23 billion, solidly placing it in large cap territory. The trailing twelve month price/earnings ratio is 13.92 and the price/earnings growth ratio is 1.20. United has a price to book of 2.98 and a return on equity of 22.39%. Quarterly year-over-year revenue growth and quarterly year-over-year earnings growth are 8.70% and 10.50% respectively. The debt/equity ratio is 47.52 and the current ratio is 1.32, both demonstrative of a sound financial position. The dividend yield is 2.50% and the payout ratio 34% is supportive. United has a 5 year average dividend yield of 2.10.

In the industrial goods sector, we have rival Boeing Co. (NYSE:BA) trading at about $70.90 per share. This large cap ($52.70 billion) has a trailing twelve month price/earnings ratio of 14.03 and a price/earnings growth ratio of 1.22. Boeing’s price to book is high at 8.83.

It boasts an amazing return on equity of 71.42%, however, quarterly year-over-year revenue growth is less impressive at 4.50%. Quarterly year-over-year earnings growth is healthy at 31.20%. I’m totally unimpressed by BA’s debt/equity ratio of 204.26, although its current ratio is acceptable at 1.23. The company’s dividend yield of 2.40% is supported buy a payout ratio of 33%. The 5 year average dividend yield is 2.50%. This match-up is a win for UTX.

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