As we approach the end of 2011, it is time for investors to start setting up their portfolios for the new year. In part one of my two part series, I focused on my top seven names for growth-oriented investors. Today, in the second part of my series, I will focus on my top seven value names. Now, everyone has a different view of what a "value" name is, so here are my criteria for this article. The company must have a dividend yield of at least 3%, at must have grown that dividend continually over the past 5 years. I am giving a slight boost as well to those companies that are buying back stock, but that is not a requirement to be on this list.
|Waste Management (WM)||4.46%||10.04%||Yes|
|Philip Morris (PM)**||4.02%||12.56%||Yes|
|Procter & Gamble (PG)||3.19%||11.11%||Yes|
|Dominion Resources (D)||3.78%||7.38%||No|
**3 year average growth rate after spinoff.
My Top Pick - Intel: Intel is my top pick on this list because the company has a solid dividend and that dividend has averaged about 16% growth in the past five years. Five years ago, Intel was paying just 40 cents a share annually, now, they are paying more than double that at 84 cents a year.
Intel is also buying back stock in large quantities. Their latest buyback program, started in 2005, allowed for up to $45 billion in share repurchases, including the $10 billion increase that was announced just three months ago. As of the most recent quarter, the company had over $14 billion left on its current program, which accounts for more than 11% of its current market cap. Intel repurchased $4 billion of stock in the third quarter, and $10 billion in the first nine months of 2011. Since Intel began repurchasing shares in 1990, the company has bought back almost 4 billion shares at a cost of $80 billion.
Some may ask about Intel's recent warning and how that affects my position. For a full analysis of the warning, read my article on their warning. But here's why the warning to me doesn't affect my pick. The stock has come down nearly $2 since its all-time high, and was even lower before Tuesday's rally. To me, the warning was a one or two quarter issue due to the flooding in Asia, and I think that situation will work itself out throughout 2012. Intel took down their Q4 numbers in a large way, and said there could be some impacts in the first half of 2012, but I think they can make it up in the second half of the year. Analysts have taken down their 2012 consensus on the stock from $2.56 in earnings to $2.39, with some more revisions likely. I think that the 17 cents is slightly overdoing it, and if more analysts take their estimates down, Intel will be set up to beat expectations. With the stock coming down off its high, it will allow the company to buy back even more shares, which is good for both the stock and for EPS. Thanks to Intel buying back shares and reducing their share count, they can continue to increase that nice dividend.
Microsoft: Microsoft boasts a three percent plus yield after its most recent raise, and the company has doubled its dollar payout over the past five years. That equates to about 15% annual growth. Microsoft repurchased about 38 million shares in the third quarter at a cost of $1 billion. As of the latest quarter, they had $11.2 billion remaining, about 5% of current market capitalization, on a $40 billion buyback program scheduled through September 2013. Microsoft has over $60 billion in cash and investments at its disposal, and with strong cash flow thanks to a solid core business, it will be able to continue these buybacks and dividends in the near future.
Verizon: Verizon doesn't have a buyback, but it does have the highest yield of the seven names on this list. The company has a current yield over 5%, and has solidly increased that number by more than 4% a year over the past five years. I chose Verizon because I think that they will do well in 2012 when the new IPad comes out, and that they will benefit from the failed merger between AT&T (T) and T-Mobile. Verizon is projected to have higher revenue and earnings per share growth than its main rival, which is why it gets onto my list.
Waste Management: Waste Management has the second highest yield on my list, at 4.5%, thanks to a recent raise in the dividend, and they have increased their dividend at a five year growth rate of 10%. Garbage and waste removal is not a business that is going away anytime soon, so this is a nice value play for the long term. The company has completed its share repurchase program for 2011, having bought back $546 million worth of stock. They have not announced any plans going forward for future repurchases of shares.
Philip Morris: The tobacco company boasts a nice dividend which has grown steadily since the company was spun off. Last month, I wrote why this name is the best value in the tobacco industry. Here's another reason to buy. The company has averaged about $5 billion in buybacks over the past few years, and given their strong cash position, is likely to continue that trend. If you don't believe that this company is strong right now, then why was their latest dividend increase from 64 cents to 77 cents? That's quite a large jump, and shows tremendous financial flexibility in the name.
Procter & Gamble: I'd be wrong if I didn't have at least one consumer name on my list, and this one fits the bill. P&G has a three percent plus dividend and has increased its dividend by over 11% a year in the past five. The company bought back $1.3 billion in stock during the past quarter and has bought back between $5 billion and $6 billion of stock each year in the past couple of years. This name has been one of the premier value names in history, and I cannot exclude it from my list. I also considered Johnson and Johnson (JNJ) for this spot, but P&G had better expected revenues and earnings per share growth.
Dominion Resources: Utility companies are always good dividend plays, and Dominion is a strong player in the Virginia region. The company boasts a 3.8% dividend and has grown it steadily. Dominion did buy back stock this year due to a cash tax savings, but the company said that was a one time purchase and does not expect to buy back any more shares at present. The company is also expected to grow revenues this year and next.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.