by Robert Gordon
Dividend yields can help compare different dividend-paying stocks. For example, an investor can find out what they will earn with one stock and compare it to others. Dividend yields can also help an investor evaluate stocks against assets such as bonds, certificate of deposit, mutual funds and others. The dividend yield of a stock is calculated by dividing annual dividend by current stock price. In the following article, I will discuss six new high yield leaders of the current market, and how they are positioned going forward.
Universal Corporation (UVV): Universal Corporation operates as a leaf tobacco merchant and processor primarily in North America, South America, Africa, Europe, and Asia. The stock issues an annual dividend of $1.96, has a yield of 4.40% and a payout ratio of 68%. It has a market cap of $1.09 billion, which is higher than its competitor Alliance One International, Inc. (AOI) at $267.36 million but lower than the industry and competitor British American Tobacco plc (BTI), which have market caps of $18.84 billion and $93.61 billion, respectively. Universal Corporation's revenue (TTM) is $2.49 billion. Its profit and operating margins of 3.51% and 9.92% are superior to competitor Alliance One International's margins of -5.63% and 4.61%, but lower than British American Tobacco, which has profit and operating margins of 21.46% and 35.15%, respectively. This may help understand how management at Universal Corporation is better at managing expenses than Alliance One International, but worse than British American Tobacco. Cash flow has been steady with some fluctuations for the past five years. The stock has been on a strong bullish trend for the last four months. I believe this stock will pull back a bit before trending higher at the $55 range, as it did in 2010. I would recommend this stock for investors looking for a good mid- to long-term opportunity.
ConAgra Foods, Inc. (CAG): ConAgra Foods operates as a food company primarily in North America. It operates in two segments, consumer foods and commercial foods. It issues an annual dividend of $0.96 with a yield of 3.60%, and a payout ratio of 54%, compared to its competitors H. J. Heinz Company (HNZ) and Kraft Foods Inc. (KFT), who have payout ratios of 63% and 64%, respectively. Over the last twelve months the stock's sales and income increased 2.40% and 11.20%, respectively. Earnings per share are $1.78 which gives the stock a price to earnings ratio of 15.45, lower than Heinz's 17.66 and Kraft's 21.09. The stock is currently trading near its 52-week high, which indicates the solid bullish momentum of the stock. I believe this uptrend will continue because income has been growing over the last two years, a good indication that it will continue to increase this year with the help of better economic conditions. A higher income may increase dividend distributions, which would lead to an even higher yield, depending on the stock price at that time. At current prices, I believe this stock presents a good opportunity, due to its consistent sales growth in an improving economic climate.
Pitney Bowes Inc. (PBI): Pitney Bowes provides mail processing equipment and integrated mail solutions worldwide. It offers a suite of equipment, supplies, software, services, and solutions for managing and integrating physical and digital communication channels. The stock issues an annual dividend of $1.48 with an astounding yield of 7.80% and a payout ratio of 78%. Revenue is $5.37 billion, lower than its competitor Xerox Corp. (XRX), who has revenues of $22.63 billion. Nevertheless, Pitney Bowes has higher earnings per share at $2.08, compared to $0.90 for Xerox, a great indication of management's ability to manage expenses well, which leads to higher income, and in turn leads to higher earnings per share. Although the stock has been on a downward trend over the past five years, due to a decrease in income and revenue, I expect the stock to rebound. As the economy recovers, businesses and individuals will begin buying more shipping products, increasing the demand for mail processing equipment and software. I believe this stock presents a great opportunity for investors looking for solid growth potential in the coming quarters.
R.R. Donnelley & Sons Company (RRD): This company provides pre-media, printing, logistics, and business process outsourcing products and services to private and public sectors worldwide. It issues an annual dividend of $1.04 with a yield of 9.20% and a payout ratio of 88%. Over the last twelve months, sales increased almost 2%, while income skyrocketed 912% during the same time period. This is primarily because the company's unusual expense was lower in Q3, compared to Q2 for fiscal year 2011. Earnings per share are $1.14 compared to $0.33 for its competitor Dai Nippon Printing Co. Ltd. (DNPCF.PK). R.R. Donnelley & Sons has revenue of $10.60 billion while Dai Nippon Printing's revenue is $20.29 billion. Operating and profit margins are higher for R.R. Donnelley & Sons, resulting in a higher earnings per share than its competitor. The stock is trading close to its 52-week low, however, I expect the stock to make a rebound as the stock was likely profitable in fiscal year 2011. In 2010, the stock was profitable for the first time after reporting losses the preceding two years, thus I expect the stock to begin trading higher as it becomes profitable again. I see this stock as an opportunity for the short to mid-term investor.
Reynolds American Inc. (RAI): Reynolds American Inc. manufactures and sells cigarette and other tobacco products in the United States. The stock has annual dividends of $2.24, a yield of 5.70% and a payout ratio of 91%. The stock has been in an uptrend since 2009, due to steady cash flow and an increase in net income, which leads to higher earnings per share and more capital to distribute as dividends. The stock has revenues of $8.54 billion compared to $4.35 billion for its competitor Lorillard, Inc (LO). However, earnings per share at Reynolds American ($2.27) are lower than Lorillard's ($7.43). This is an indication that operating and profit margins are lower for Reynolds American, so its expenses are higher relative to revenue compared to Lorillard. As a strong leader in the tobacco industry, I believe Reynolds American will continue to gain market share. I expect revenue growth to increase in the coming quarters, and the stock's momentum to continue. I believe this stock presents a great opportunity in the mid- to long-term.
Deluxe Corporation (DLX): Deluxe Corporation provides personalized printed products, promotional products, and merchandising materials in the United States, Canada, and Europe. It issues an annual dividend of $1.00, has a yield of 3.90% and a payout ratio of 36%. The stock is currently trading close to its 52-week high of $29.30. It has been in an uptrend since 2009, due to an increase in revenue, income, and slightly better economic conditions for business services. Earnings per share are $2.80 compared to $1.14 for its competitor R.R. Donnelley & Sons Company discussed earlier. From a technical perspective, I believe the stock is on its way to trade back in the $40 range as it did in 2007. I'm confident a better economic outlook in the business services industry will help the stock trade higher as businesses increase their spending in printed products, promotional and merchandising materials. I believe this stock presents a good mid- to long-term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.