Investors should be familiar with the well-known Dogs of the Dow, the 10 Dow stocks with the highest dividend yield. Over the years the Dogs have been touted and debunked but they still remain as a solid tool for investors to look for juicy high yielding blue chip stocks.
Below are three which have drawn my particular interest as good values in this volatile market.
1. General Electric (GE) – Since falling to almost $5 per share in 2009, GE has come back strong and opened 2012 by breaking through its 50 month moving average, a significant milestone.
The business mix is stronger with forays into areas like oil and gas services paying dividends along with a strong healthcare base. Both divisions are well placed for solid growth in the coming years and decreasing the reliance on GE Capital which continues to grapple with the after-effects of the housing collapse.
The Equipment and CSA backlog currently stands at $191 billion dollars versus $158 billion in 2007, a sign that GE’s big ticket items are in high demand.
One undervalued area may be the joint venture with Comcast (CMCSA) which combined NBC Universal with Comcast’s cable properties and regional sports networks, setting up a much needed competitor to ESPN on the sports scene.
GE Capital appears to be in good shape with on $300 million of Greek and Italian exposure but European risks remain in the event contagion spreads to countries like France and Austria.
Earnings are on track for more growth in 2012 as sales stabilize. As a sign of continuing health the dividend was raised twice in 2011 from fourteen to seventeen cents per share. The dividend yield of 3.5% provides a nice downside cushion for a conglomerate whose various divisions are well placed for future growth.
A P/E ratio in the 15-15.5 range and an annual dividend yield of 3.6% based on the last quarterly dividend make GE a solid dividend stock for 2012.
2. Johnson & Johnson (JNJ) – JNJ has seen revenue growth slow over the past few years as the company switches gears and brings new products online as some major drugs come off patent.
The consumer products division is well known for their strong brand names. In fact, a quick trip to any drug retailer will yield a strong amount of shelf space allocated for JNJ products. In the fourth quarter of 2011, JNJ closed the acquisition of SterilMed which will help extend JNJ’s reach into hospitals.
The low beta and high dividend yield protects investors in this time of high volatility and the diversified revenue base protects against an overreliance to one superstar drug. The biggest risk is the continuing quality control problems in the consumer sector which should be monitored by investors. The balance sheet remains rock solid with JNJ being one of the few remaining AAA rated companies. The dividend yield sits in the 3.5% range with the stock holding a P/E just under 16.
While there may be sexier drug stocks in the market, investors will be hard pressed to find a company with as much diversified reach in the consumer healthcare market as JNJ.
3. Verizon (VZ) – Verizon is one of the largest telecommunications companies in the world with wireline, wireless, and video customers. The stock has recently broken out of a base formation making new highs before pulling back this year as investors seek out the high dividend yield and stable cash flow while adding a stock on the cutting edge of technology.
Verizon showed growth across all areas in the third quarter of 2011 with cash flow from operations totaling $8.7 billion. As the FiOs buildout begins to wind down, expect new initiatives in wireless spectrum to expand capacity as smartphones, tablets, and new initiatives gobble up the remaining wireless capacity.
VZ is a bit more expensive than GE or JNJ with a P/E in the 18 range but a dividend yield of greater than 5% and stable cash flow makes VZ a strong undervalued Dow stock.
Additional disclosure: Outstanding limit order on Verizon.