Dividend yields can help compare different dividend-paying stocks, allowing investors to find out what they will earn with one stock and compare it with others. It can also help investors evaluate it against investments in assets such as bonds, certificates of deposit, and mutual funds. The following is an analysis of the market's new high yielders. These six high yielders are stocks of established businesses that will more likely continue offering stable dividends and yields as the economy heals.
SuperValu Inc. (SVU) operates retail food stores in the United States. The company's stores offer grocery, general merchandise, health and beauty care, pharmacy, and fuel products. The stock issues an annual dividend of $0.35, with a yield of 5.10%. Revenue during the last three years declined, mainly due to reduced traffic into its stores, as consumers cut back on spending and only purchased necessary items for survival. Furthermore, this decline in revenue caused the company to report losses for fiscal year 2010.
SuperValu's revenue of $36.53 billion is lower than all its three competitors: The Kroger Co. (KR), Safeway Inc. (SWY), and Wal-Mart Stores, Inc. (WMT), which have revenues of $88.99 billion, $42.84 billion, and $440.14 billion, respectively. SuperValu is the only stock to report losses amongst the four companies. I believe the stock is relatively cheap, because it's trading around the same levels it was trading back in the late 1980s, especially when adjusted for inflation.
I conclude the stock can make a big turnaround as the economy improves and customer walk-ins into the company's stores increase. The increased buying and spending at the company's stores can help the stock maintain or increase its dividend payouts.
Lockheed Martin Corporation
Lockheed Martin Corporation (LMT) engages in the research, design, development, manufacture, integration, operation, and sustaining of advanced technology systems and products in the areas of defense, space, intelligence, homeland security, and government information technology in the US and internationally.
The LMT stock issues an annual dividend of $4.00, has a yield of 4.80%, and a payout ratio of 42%. Revenue has been consistently increasing for the last five years. In 2011, revenue was $46.5 billion, compared to $68.74 billion for its competitor Boeing Co. (BA). Despite the lower revenue, Lockheed Martin Corporation's earnings per share were $7.82 compared to Boeing's $5.34, a good indication that Lockheed Martin is more efficient in controlling expenses than its competitor.
The LMT stock is not too volatile, as it has been trading sideways within the $70-$87 range since early 2009. Moreover, the stock recently broke its 52-week high of $83.72; higher revenue and cash flow than the preceding year is making the stock jump higher. I believe this bullish momentum will continue as revenues increase consistently, allowing the stock to maintain or even increase its dividend distributions.
Footlocker Inc. (FL) operates as a retailer of athletic footwear and apparel. The company operates in two segments, athletic stores and direct-to-customers. The stock has an annual dividend of $0.66, with a yield of 2.50%, and a payout ratio of 40%. The stock is currently trading very close to its 52-week high of $27.32. During the last twelve months, income increased by 260%, primarily because expenses were much lower than the previous year, while revenue was slightly higher than the previous year.
Furthermore, the stock's earnings per share (TTM) came in at $1.63, while its competitor's Finish Line Inc (FINL) has earnings per share of $1.43. That may be a reason why Footlocker's price to earnings is slightly higher (16.42) than Finish Line (15.78), implying that investors are willing to pay more to own the Footlocker stock. From a technical perspective, the stock is in a strong bullish trend to trade in the $30-$35 range. I believe the stock will benefit as consumer confidence in the economy increases, which means they could buy more pairs of shoes from Footlocker, leading to more revenue and possibly a higher dividend payout.
Campbell Soup Company
Campbell Soup Company (CPB), together with its subsidiaries, engages in the manufacturing and marketing of branded convenience food products worldwide. The stock pays an annual dividend of $1.16, has a yield of 3.60%, and a payout ratio of 48%. Revenue for the last three years has remained flat around $7.7 billion, while cash flow has been steadily increasing during the same period.
Currently, the stock has earnings per share of $2.41 compared to $2.35 and $1.83 for General Mills, Inc (GIS) and Kraft Foods Inc. (KFT), respectively. From a technical perspective, the stock is giving no clear hints of its direction, as it has been trading between $30 and $35 over the last twelve months. This may indicate that investors are not ready to go long or short yet, due to the company's stagnant revenue over the last three years.
Nevertheless, I don't think this will cause a major negative shift in the dividends issued quarterly because the company seems to be certain to always allocate enough resources to maintain or increase its dividend payments.
National CineMedia, Inc.
National CineMedia, Inc. (NCMI) operates a digital in-theater network in North America. The stock issues an annual dividend of $0.88, with a yield of 6.10%, and a payout ratio of 121%. The stock's earnings per share came is at $0.67, and the price to earnings ratio is 20.80, higher than the industry average of 17.58. Revenue has grown at an annual compound rate of 4.98% for the last three years, while net income increased at an annual compound rate of 208% during the same time period.
The company's revenue of $438.90 million is higher than the industry's average of $135.68 million. I believe the stock is beginning to trend higher after pulling back during all of 2011, thus I think right now will be a good time to buy some shares, especially because consumers will spend more on movie tickets, as their confidence increases with better unemployment numbers and an improved real estate market.
Frontier Communications Company
Frontier Communications Company (FTR) provides voice, data, and video services to residential, business, and wholesale customers in the US. The stock issues an annual dividend of $0.75, has a yield of 17.40%, and a payout ratio of 500%.
Revenue has increased at a compound rate of 19.29% during the last three years, while income decreased at an annual compound rate of 16.43% during the same time period. However, during the last twelve months, sales and income increased 79% and 26%, respectively. Last year, the stock's earnings per share came in at $0.16, compared to $0.66, $1.51, and $3.95 for AT&T, Inc. (T), CenturyLink, Inc. (CTL), and Fairpoint Communications, Inc. (FRP), respectively.
The stock has been on a bearish trend since the beginning of 2007. In fact, it is now trading at all-time historical lows. I think the stock may trade lower, but the potential for a rebound is higher because the stock, in my opinion, is quite cheap. However, the debt to equity ratio of 171.56 is sending the stock tumbling down. Investors' demand for the stock will commence, I believe, when this dangerously high ratio is fixed.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.