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According to the average forecast of 12 strategists tracked by Bloomberg, “the benchmark gauge will climb to 1,348 after it was virtually unchanged in 2011 and the U.S. beat every equity market in the developed world except Ireland.”
While the 2000s ended with the tech wreck and an overbought stock market, the last 10 years of no price appreciation has helped valuation. Earnings and dividends of large-capitalization companies have grown over the last decade creating opportunity for value investors. With the 10-year U.S. treasury below 2.0%, equity market investors can find yields in high-quality large-capitalization companies at relatively modest valuations. A screen of high yielding equities with price to earnings below 20.0x yielded the following:
Verizon Communications Inc. Com (VZ) - telecom
Market Capitalization: $113.5 billion
Price to Earnings: 16.1x
Dividend Yield: 5.0%
Debt to EBITDA: 1.3x
Thesis: VZ is the market leader in the wireless market, with nearly 100 million customers and coverage of more than 95% of the U.S. population. VZ provides exposure to the high growth and stable wireless sector.
Altria Group, Inc. (MO) – tobacco
Market Capitalization: $62.0 billion
Price to Earnings: 17.7x
Dividend Yield: 5.5%
Debt to EBITDA: 2.0x
Thesis: MO is a cash cow that provides investors a strong dividend yield in a low growth, yet stable market. Similar to VZ, MO is a market leader in the U.S. tobacco market with nearly 50% market share.
Duke Energy Corporation (DUK) - utilities
Market Capitalization: $29.3 billion
Price to Earnings: 15.9x
Dividend Yield: 4.5%
Debt to EBITDA: 4.0x
Thesis: DUK operates a regulated utility with strong pricing power. Similar to MO, the company’s strong dividend yield provides cash flow for investors.
American Electric Power Company (AEP) - utilities
Market Capitalization: $19.9 billion
Price to Earnings: 12.9x
Dividend Yield: 4.6%
Debt to EBITDA: 3.7x
Thesis: Similar to DUK, AEP is a utility with strong cash flow. The company operates s diverse model limiting risks to any one state.
AT&T Inc. (T) - telecom
Market Capitalization: $179.2 billion
Price to Earnings: 15.3x
Dividend Yield: 5.8%
Debt to EBITDA: 1.8x
Thesis: The company operates an entrenched business model with millions of residential and commercial (business) customers. Its strong dividend and low leverage makes T a strong pick.