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Treasury yields are extremely low. Income investors who were planning to live on the interest payments of their savings have had to find other alternatives to Treasury bonds or savings accounts. Dividend stocks offer higher yields and have the potential to increase dividend payments over the next 5-10 years. Unfortunately, dividend payments aren't guaranteed. That's why we prefer stocks that have strong profitability and market power when picking dividend stocks. The stocks below have the highest return on equity in their industries. Their dividend yields are also higher than 10-year Treasury bonds which yield 1.85%. Half of the stocks in this list also yield more than 4.9%.

Exxon Mobil Corp. (NYSE:XOM) offers a 27% return on equity to its investors with an annual dividend yield of 2.2%, translating into a dividend payout ratio of 22%. In the last reported quarter, the company's earnings showed an increase of 40% year-on-year while revenues were up by 32%. The stock was up by 9% in the past twelve months and is currently trading at a forward price-to-earnings ratio of 10x. Exxon Mobil has international operations in the exploration and production of petroleum products, including high margin petrochemicals.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) operates in the materials sector and offers a 41% return on equity, which is the highest in this sector. The company has a dividend yield of 2.4%. After a drop of 29% in stock prices in the last twelve months, the company is trading at a forward price-to-earnings ratio of 9x. Freeport-McMoRan has strong operating margins of 49%, a healthy balance sheet with a current ratio above 3, and positive cash flows. While the earnings estimates are lower for the first quarter of 2012, going forward the company is expected to grow by 5%.

Boeing Co. (NYSE:BA) offers a return on equity of 87%, which is the highest in the industrials sector. Despite having only a 4.5% growth in quarterly revenues year-on-year, the company's earnings were up 31%. Boeing offers a dividend yield of 2.4%. The stock performance remained stable over the past twelve months, with the price increasing by 3%. It is trading at a forward price-to-earnings ratio of 15x. With a revenue growth of over 10% in the next two quarters, the company is expected to outperform the industry. Hence, the stock remains a good investment.

Philip Morris International Inc. (NYSE:PM) is the company behind big international brands including Marlboro and Virginia Slims. The stock offers a return on equity of 236% which is highest in the consumer staples sector and has a dividend yield of 3.9%. The stock is up by 38% in the past twelve months and is currently trading at a forward price-to-earnings ratio of 14.9x. In the last reported quarter, the company's earnings were up by 30% year-on-year.

Windstream Corp. (NASDAQ:WIN) Not only is Windstream's return on equity of 47% the highest in the telecommunications sector, the company is also offering a very high dividend yield of 8.3%. Windstream's quarterly earnings saw a 16% year-on-year decline, which resulted in a drop in stock prices by 6.9% over twelve months. The stock is currently trading at a forward price-to-earnings ratio of 14x. Its earnings are expected to stay depressed till the end of March, after which these are expected to revert back to their average historic level.

Exelon Corp. (NYSE:EXC) operates in the utilities sector and has a 20% return on equity. The company is offering a high dividend yield of 5.3%. Exelon's earnings declined in the last reported quarter by 29% which is also reflected in the lowered stock prices. However, the company has a healthy balance sheet with a current ratio of 1.3x and a cash balance of over a billion dollars. The company is currently trading at a forward price-to-earnings ratio of 13x.

Lockheed Martin Corp. (NYSE:LMT) operates in the industrial goods sector and its stock price went up by 6.5% in the last 52 weeks. The company has a return-on-equity of 78.7% and a dividend yield of 4.9%. It is trading at a forward price-to-earnings ratio of 10.5x. The last quarter saw an improvement in net margins as revenues grew by 7% year-on-year, while the company's net income of $2.82 billion was up by 25%.

Colgate-Palmolive Co. (NYSE:CL) has a dividend yield of 2.6% and a return on equity of 92%. The company is a part of the consumer staples sector and its operations have international presence. Its stock price has risen by 13% in the past twelve months, and at the current stock price of $88.52, the company is trading at a forward price-to-earnings ratio of 16x. In the last reported quarter, Colgate-Palmolive showed a profit growth of 4% year-on-year. The company has healthy positive cash flows.

Federated Investors Inc. (NYSE:FII) offers a return on equity of 31%. The company saw its stock price decline by 36% in the past twelve months and its earnings decline by 11% year-on-year in the last reported quarter. Federated Investors offers one of the highest dividend yields in the financial sector of 5.6%. Its stock is trading at a forward price-to-earnings ratio of 10.65x. The company maintains a strong balance sheet and healthy positive cash flows.

Linear Technology Corp. (NASDAQ:LLTC) operates in the technology sector and offers a high return on equity of 152%. The company has a dividend yield of 3.2%. After a drop of 17% in stock prices over the last twelve months, the company is trading at a forward price-to-earnings ratio of 15x. Linear Technologies has strong operating margins of 50%, a healthy balance sheet with a current ratio above 7, and positive cash flows. While earnings estimates are low going forward, the company is expected to recover later this year.

Verizon Communications Inc. (NYSE:VZ) is a part of the telecommunications sector and offers a return-on-equity of 16%. The company saw its stock prices increase by 13% over the last twelve months, after which the stock is now trading at a forward price-to-earnings ratio of 15.3x. Verizon Communications reported a growth in its revenues in the last quarter of 5.4% year-on-year, and a substantial increase of 109% in earnings. It has a dividend yield of 5.1%.

PP&L Corp. (NYSE:PPL) offers a return on equity of 16% and operates in the utilities sector. The company has a dividend yield of 5.0% with a payout ratio of 54%. The stock is up 10% over the past twelve months, and is currently trading at a forward price-to-earnings ratio of 11.5x. In the last reported quarter, PP&L's earnings were up by 79% year-on-year while its revenues grew by 43%. The company has a stable balance sheet with a current ratio of 1.2x.

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

Source: 12 Dividend Stocks With Best-In-Industry Profitability