The recent volatility in the markets and lack of confidence about future growth are making dividend stocks attractive. The reason why stems from the belief that these kinds of companies can provide income and earnings stability. To determine the strongest firms for 2012 requires examining Altria (NYSE:MO), Partner Communication (NASDAQ:PTNR), Hudson City Bancorp (NASDAQ:HCBK) Energy Transfer Equity LP (NYSE:ETE) and AT&T (NYSE:T). Therefore, use this information as a starting point for all future research.
Altria yields 5.70% and has a payout ratio of .82. The firm has a forward price earnings ratio of 13.18 and earnings have been rising consistently over the last year (going from $.44 to $.56). This is helping to fuel bottom line growth of 21.16 % in profits. There is a current ratio of 1.49. Moreover, the stock is trading in a bullish technical pattern with shares trading above the 200 day moving average of $26.55.
These factors are showing how the dividend rate for Altria will increase in the future. The firm is attractively valued and has above average rates of growth. While the sale of tobacco products, alcohol and fuel hedging strategies are providing consistency in earnings. The majority of profits are paid out to shareholders in the form of a dividend. This has pushed the stock price higher (which is protecting Altria against inflation and sudden changes in the economy).
As a result, this stock is an ideal purchase for the dividend. In the future, yields will more than likely increase from strong profit margins, a sound business model, ample liquidity and stable earnings. This will ensure continuous stability in the price of the stock and a consistent dividend rate.
Partner Communications yields 7.60% and has a payout ratio of .099. The company has a forward price earnings ratio of 1.40 and there is a current ratio of 1.23. During the last year earnings have declined by 32.1% from $1.98 to $1.31. While this was happening the price of the stock has declined to $8.53. This is below the 200 day moving average of $12.71 and is considered to be bearish. These elements are highlighting how Partner Communications will not be able to sustain the current dividend rate. The aforementioned is based on the low dividend payout ratio, unstable earnings and the current ratio.
Furthermore, the price of the stock is in a bearish pattern that is experiencing lower lows. Until there is more clarity in earnings, the company will face a number of challenges. Therefore, investors should avoid purchasing the stock for the yield or long term growth potential.
Hudson City Bancorp
Hudson City Bancorp yields 4.60% and the dividend payout ratio is a -.19. The company has a forward price earnings ratio of 10.16. In the last 52 weeks earnings have been volatile going from $.25 to -$1.13. There is no current ratio available. These factors have caused the stock to decline to $5.09. This is below the 200 day moving average and is a bearish signal. As a result, the dividends are unsustainable. The reason why is from the lack of liquidity in comparison with outstanding debt (i.e. no current ratio).
Furthermore, the firm is paying out dividends that are borrowed from creditors / investors and the earnings have been unstable. In the future, this means that the dividends could be reduced or eliminated. Moreover, the low amounts of liquidity may cause the bank to face solvency issues. It is at this point that the stock will fall dramatically based on poor fundamentals and momentum (which will adversely impact the dividend). Therefore, investors should avoid purchasing the stock until these factors change.
Energy Transfer Equity LP
Energy Transfer Equity LP yields 6.10% and has a dividend payout ratio of .54. The company has a forward price earnings ratio of 20.29 and there is a current ratio of .79. In the last year earnings have been declining going from $.40 to $.31. During this time the price of the stock fell to $30.87 (by early October). However, over the last few weeks share have crossed through the 200 day moving average (which is bullish). This has taken place in conjunction with heavier amounts of volume. These numbers are highlighting changes that are occurring in the firm's balance sheet. The way this was accomplished is through the recent sale of the propane unit to Amerigas Partners for $2.5 billion in debt and securities. In the future, this could help to provide stability to the earnings and support the dividends.
As a result, investors should watch the earnings reports. This will identify when improvements are taking place in the balance sheet. These are key elements in determining if the company has the earnings to push shares higher in supporting the current dividends. Therefore, investors need to be vigilant of large divestments in the balance sheet and earnings (which will have a direct effect on the dividend yield).
AT&T yields 5.90% and has a dividend payout ratio of .751. The firm has a forward price earnings ratio of 12.43 and the current ratio is .84. During the past year earnings have been steadily increasing from $.55 to $.61. This has helped to push the price towards a new 52 week high of $31.94. These recent moves are above the 200 day moving average of $28.86 and are considered to be a bullish sign. The aforementioned facts are showing how the price of the stock has strong upward momentum, fundamentals and earnings power. In the future these trends should continue.
However, the problem is with the low current ratio. This is a sign that the dividend could be reduced in the future. If this were to happen, the total return that investors are receiving would decline. As a result, AT&T has the potential to provide above average growth and is an ideal candidate for this purpose. While the stability of the earnings could pose challenges if the company does not improve the current ratio. Therefore, investors should be watchful of potential changes in the dividend and the effect on shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.