How 5 Dividend Stocks Stack Up Against Their Toughest Competitors

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 |  Includes: ABT, CVX, DG, FDO, HD, LOW, MRK, PSO, SPGI, XOM
by: Dividend Kings

These five companies boast dividend increases and solid performance over the last ten years at least. In this article, I compare each company to an industry peer to determine if it is a better buy than its industry peer.

Abbott Laboratories (NYSE:ABT) – This major drug manufacturer is currently trading near $54 a share. Over the past 52 weeks, it has ranged from $45.07 to $55.61. Ten years ago, Abbott closed near $39. Its market capitalization is over $84 billion. Earnings per share are $2.90, and its price to earnings ratio is a little high at 18.69. Its dividend yield is 3.50% or $1.92, and its payout ratio is 64%. Its operating cash flow is $9.89 billion. Abbott has paid a dividend since 1926 and has increased its payment for the past 38 consecutive years. The company offers investors a direct stock purchase/dividend reinvestment program.

Its competitor Merck & Co. Inc. (NYSE:MRK) is currently trading near $35 a share, which is closer to the higher end of its 52-week range of $29.47 to $37.65. Ten years ago, Merck was trading near $37, adjusted for dividends and splits. The company’s market capitalization is over $108 billion. Earnings per share are $1.37, and its price to earnings ratio is high at 26. Merck’s dividend yield is very attractive at 4.70% or $1.68. Its payout ratio is high at 110%, and its operating cash flow is $12.69 billion. Merck began paying a dividend in 1935. Management has not increased its payment since September 2004.

Abbott is priced near its yearly high, and it is trading at a premium to its earnings. Merck is also trading at a premium. Abbott boasts a better track record of dividend increases and a more reasonable payout ratio. It is the safer bet for longer-term and income investors.

Family Dollar Stores Inc. (NYSE:FDO) – This discount retail chain is currently trading near $57 a share, which is at the higher end of its 52-week range of $41.31 to $60.53. It was trading near $24 ten years ago. The company’s market capitalization is almost $7 billion. Earnings per share are $3.12, and its price to earnings ratio is 18.28. Family Dollar Stores’ dividend yield is 1.30% or $0.72. Its payout ratio is 21%, and its operating cash flow is $528.06 million. The company’s dividend payment history dates to 1976. It has increased its payment for the past 14 consecutive years. It offers no direct stock purchase or dividend reinvestment plan.

Its competitor Dollar Tree Inc. (NYSE:DG) is currently trading near $41 a share, which is at the higher end of its 52-week range of $26.65 to $42.10. Its initial offering price in November 2009 was $21. The company’s market capitalization is over $14 billion. Earnings per share are $2.01, and its price to earnings ratio is 20.37. Dollar Tree does not pay a dividend.

Family Dollar Stores may not pay a high dividend, but its track record is attractive. It can add diversity to income and long-term portfolios without adding a lot of risk or instability.

Lowe’s Companies Inc. (NYSE:LOW) – This home improvement retail chain is currently trading near $24 a share. It has ranged from $18.07 to $27.45 over the past 52 weeks. Ten years ago, it was trading near $21. The company’s market capitalization is close to $31 billion. Earnings per share are $1.37, and its price to earnings ratio is 17.92. Lowe’s dividend yield is 2.30% or $0.56. Its payout ratio is 43%, and its operating cash flow is $3.91 billion. Management has increased the company’s payout for the past 49 consecutive years. Payments date to 1961. The company offers a direct stock purchase/dividend reinvestment plan.

Its competitor The Home Depot Inc. (NYSE:HD) is currently trading near $39 a share, which is close to its 52-week high of $40.93. Its 52-week low was $28.13. Ten years ago, Home Depot was trading near $40. Home Depot’s market capitalization is over $60 billion. Earnings per share are $2.32, and price to earnings ratio is 16.87. Its dividend yield is 2.90% or $1.16. The company’s payout ratio is 43%, and it operating cash flow is $6.29 billion. Home Depot has paid a dividend since 1987. Management raised its quarterly payment in November to $0.29. Prior to that, it paid $0.25 a share for three quarters. It offers no direct purchase/dividend reinvestment plan.

Home Depot may be a better known company with a larger market capitalization, but Lowe’s boasts a better track record. It offers longer term and income investors a nice dividend and the opportunity for growth.

The McGraw-Hill Companies, Inc. (MHP) – This book publisher, which operates the credit rating service Standard & Poors, is currently trading near $42 a share, which is toward the higher end of its 52-week range of $26.95 to $40.77. Ten years ago, it was trading near $23 a share. Its market capitalization is over $12 billion. Earnings per share are $2.75, and its price to earnings ratio is 15.33. McGraw-Hill’s dividend yield is 2.40% or $1.00 a share, and its payout ratio is 35%. Its operating cash flow is $1.44 billion. McGraw-Hill has increased its dividend for the past 37 consecutive years. Payments date to 1937.

McGraw-Hill’s industry peer Pearson, Plc. (NYSE:PSO), which is based in London, is currently trading near $17 a share, which is toward the higher end of its 52-week range of $12.96 to $19.40. Ten years ago, it was trading near $7.50 a share. The company’s market capitalization is almost $14 billion. Earnings per share are $2.44, and its price to earnings ratio is 7.15. Pearson’s dividend yield is 2.5% or $0.44. Its payout ratio is 21%, and its operating cash flow is $1.54 billion. Pearson has paid a dividend since 1995. Most recently, it paid semiannual dividends of $0.229 in August and $0.419 in April. There is no direct stock purchase/dividend reinvestment plan.

McGraw-Hill is an industry leader with a strong track record and commitment to shareholders. It is a stable investment in an industry with a steady outlook. I like this stock. It may not be an investor’s top performer, but it provides a foundation for income and long term portfolios.

ExxonMobil Corporation (NYSE:XOM) – This oil and gas major is currently trading near $80, which is toward the higher end of its 52-week range of $67.03 to $88.23. Ten years ago, it was trading near $30. The company’s market capitalization is over $380 billion. Earnings per share are $8.28, and its price to earnings ratio is 9.50. Its dividend yield is 2.30% or $1.88 a share, and its payout ratio is 22%. The company’s operating cash flow is $57.65. Exxon has increased its dividends every year for the past 14 consecutive years. It boasts an average dividend growth rate of 5.7% over the last 27 years. Its industry peer Chevron Corporation (NYSE:CVX) is currently trading near $101 a share. It has ranged from $86.68 to $110.01 over the past 52 weeks. Ten years ago, Chevron was also trading near $30. This company boasts market capitalization of over $200 billion. Earnings per share are $13.50, and price to earnings ratio is 7.45. Chevron’s dividend yield is 3.10% or $3.24, and its payout ratio is 22%. The company’s operating cash flow is $40.28 billion. Chevron has paid dividends since 1912, and it has increased its payments every year for the past 19 consecutive years. If investors are in a position to choose one of these majors over the other, consider Chevron. Its dividend yield is higher, its price is a slightly better value, and its historic gain is better. If investors have the option of purchasing both to diversify, then do so, as both companies are solid performers with nice yields.

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