As more investors move into high yield dividend stocks, these stocks are seeing their valuations being distorted by increasing demand. Some of these investors will likely be paying too much for the dividend yield they are getting. This has happened with some MLPs and REITs as the yield have been pushed below their historical averages. One answer to this dilemma is to find support from stock gurus buying into dividend stocks, especially value-oriented gurus. These professional investors are known for seeking stocks trading below their intrinsic values before they add the stocks to their portfolios. The table below shows five high yield dividend stocks listed most frequently as buys by stock investing gurus.
Pfizer Inc., (PFE) a biopharmaceutical giant offers prescription medicines for humans and animals worldwide. PFE is owned by 40 gurus with 15 buying in the last quarter. PFE is trading at $21 with a dividend yield of 4.2%. It has a forward price/earnings of 9 with a five year PEG of 3.27. PFE has a reasonable enterprise value to EBITDA of 6.35. Gurus with recent purchases include: Dodge and Cox, James Barrow, Edwin Owens, Ken Fisher and others.
PFE had Q4 adjusted EPS of $0.50 that was $0.03 above the estimate, helped by tight cost controls and higher other income. Q4 sales fell 4%, with the loss of the Lipitor patent more than offsetting strength in animal health, consumer and other lines. Citing negative forex rates, PFE reduced 2012 EPS guidance to $2.20-$2.30, from $2.25-$2.35. On the plus side, there is continued promise in PFE's new drug pipeline, and benefits from a $5B common share buyback this year, and the planned spinoff of non-core businesses.
Merck (MRK) is the second of three big pharma companies on the list. MRK is owned by 28 gurus with 15 buying in the last quarter. MRK is trading at $38 with a dividend yield of 4.1%. It has a forward price/earnings of 10 with a five year PEG of 2.77. MRK has a similar enterprise value to EBITDA of 6.83. Gurus with recent purchases include: Dodge and Cox, Edwin Owens, Brian Rogers and others.
MRK had Q4 EPS that climbed 10% to $0.97 (matching the estimate), largely on gross margin expansion and reduced R&D. Sales rose 1.7%, with robust growth in the Januvia/Janumet diabetes franchise more than offsetting declines in other lines. Despite expected headwinds from negative forex, patent expiration on Singulair and lower equity income, MRK is still projected to have modest EPS growth this year, helped by cost efficiencies and stock buybacks. There is continued promise in MRK's pipeline, with 19 compounds in late stage clinical trials.
AT&T Inc. (T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide . AT&T is owned by 18 gurus with 7 buying in the last quarter. AT&T is trading at $30 with a dividend yield of 5.87%. It has a forward price/earnings of 11.7 with a five year PEG of 3.41. AT&T has an enterprise value to EBITDA of 7.84. Gurus with recent purchases include: James Barrow, Brian Rogers, John Hussman, Tweedy Browne and others.
Analysts forecast T's 2012 EPS growth will be driven by wireless margin expansion, aided by customer growth, recent price hikes and lower smartphone subsidies than in 2011. In addition, there is room for wireline improvement as the economy grows. There is a likelihood that AT&T will spin off 6 million of its rural consumer lines, or finding a network expansion solution to support EBITDA growth. AT&T has a 2012 EPS estimate of $2.42 on non-operating costs, and growth to $2.58 in 2013.
Altria Group, Inc. (MO) engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. As everyone's favorite tobacco company, MO is owned by 16 gurus with 8 buying in the last quarter. MO is trading at $29 with a dividend yield of 5.4%. It has a forward price/earnings of 12 with a five year PEG of 1.63. MO has an enterprise value to EBITDA of 10.7. Gurus with recent purchases include: James Barrow, Donald Yacktman and Dodge and Cox.
MO had adjusted Q4 EPS of $0.50, vs. $0.44, beats the estimate by $0.02 and consensus from Capital IQ of $0.49. Cigarette shipment volumes were better than the forecast, advancing 0.2% as trade inventory trends reversed from Q3. As expected, MO's retail share slipped 0.4 and 0.8 points on weaker Marlboro performance as MO chose to focus on profits rather than market share. For 2012, MO should see pricing momentum to continue and cost savings from restructuring activities to lift the EPS forecast.
GlaxoSmithKline (GSK) is the third big pharma companies on the list. GSK is owned by 14 gurus with 5 buying in the last quarter. GSK is trading at $45 with a dividend yield of 3.5%. It has a forward price/earnings of 13 with a five year PEG of 0.93. GSK has a similar enterprise value to EBITDA of 12.98. Gurus with recent purchases include: Dodge and Cox, Edwin Owens, Ken Fisher and others.
GSK had 2011 ADS per share of $3.67 which is 1.7% higher than estimates. Sales in constant currencies fell 3%, largely due to the absence of pandemic flu sales, while profits rose sharply against 2010, which was impacted by heavy legal costs.
These stocks will be great portfolio additions when we have a market pullback. The current market increase is venerable for a short term retracement.