Dividend stocks have performed well over the past year or so, as investors look for ways to create income in their portfolios. Investors currently have limited options for income investing since rates offered by certificates of deposits, money market accounts, and others, are close to zero. The U.S. Federal Reserve Bank is expected to keep rates low in the future, and this has created demand for dividend stocks that produce strong yields. It seems that many investors like to put their money in names that they are familiar with, since that gives many of them some comfort, but doing so might not provide the best returns.
For example, many investors are familiar with, or receive mobile phone or other communication services from Verizon Communications (VZ) and AT&T Inc. (T). Both of these companies are solid and have dividends that will beat the market average, however, these stocks are now trading at lofty valuations thanks to yield-starved investors who have bid both of these stocks higher. After this recent run, it might make sense to take profits in these names and consider some well run companies that trade at lower valuations and in some cases, have even better yields. Here are a number of stocks that fit this criteria and also some key statistics on both Verizon and AT&T which shows what great values the other stocks offer:
Verizon Communications provides mobile phone services, Internet access, broadband data, long distance, etc. Verizon has provided great returns over the past couple of years and the stock now trades very close to the 52-week high. As investors pile in, the yield has been steadily dropping and the shares now only yield about 5%. While that yield still beats the average for an S&P 500 Index stock, (which is around 2%), it is much lower than what comparable telecoms and other stocks are currently yielding. The biggest concern for investors should be the fact that the dividend takes up about 80% of estimated earnings. This is likely to limit future dividend increases as well as the upside for the stock. The other issue is that Verizon trades for about 16 times earnings, while the average stock in the S&P 500 Index trades for just over 12 times earnings. Verizon shares look extended at these levels, and other dividend stocks appear to have more upside.
Here are some key points for VZ: Current share price: $38.79 The 52 week range is $32.28 to $40.48 Earnings estimates for 2012: $2.48 per share Earnings estimates for 2013: $2.78 per share Annual dividend: $2 per share which yields 5.1%
AT&T Inc., is another leading provider of mobile phones and communication services. This stock has also performed well for dividend investors, and it looks like a better value when compared to Verizon as it has a higher yield and a lower price to earnings ratio of about 13.5. However, it also pays out a fairly high percentage of earnings and that could limit dividend growth in the future. In addition, there are a number of stocks that offer higher yields and a better chance of dividend growth in the future.
Here are some key points for T: Current share price: $31.68 The 52 week range is $27.29 to $31.97 Earnings estimates for 2012: $2.35 per share Earnings estimates for 2013: $2.54 per share Annual dividend: $1.76 per share which yields 5.6%
Here are some other dividend stocks that investors could consider that offer more reward in terms of current yields, plus have the potential for capital gains and faster dividend growth:
Telecom Argentina SA (TEO) is a leading provider of telecommunication services in Argentina. This company is well positioned to benefit from growth in mobile phones, rising incomes, and the generally stronger economies of Latin America. The company is benefiting from strong growth in Latin America and it recently reported an 18% jump in profits. These shares are trading significantly below the 52-week high and it has a yield that few stocks can beat. Furthermore, earnings estimates are much higher than the dividend, so the yield appears safe and it has room to grow in the future. When you consider that this stock is expected to earn far more per share than Verizon and AT&T, and that it offers about twice the yield and yet it sells for much less per share, it's easy to see the value here.
Here are some key points for TEO: Current share price: $17.56 The 52 week range is $16.90 to $26.90 Earnings estimates for 2012: $3.39 per share Earnings estimates for 2013: $3.53 per share Annual dividend: $2.21 per share which yields 11.9%
Vodafone Group PLC (VOD) is a leading provider of mobile communications services, based in the United Kingdom. It provides voice, data, Internet, and other services. This company also provides services outside of the U.K. and this adds diversification and emerging market upside to these shares. This stock yields less than some other telecoms but the reason this stock looks interesting is because the dividend takes up less than half of the company's earnings. This means dividend growth potential could be much higher with Vodafone, when compared to stocks like Verizon and AT&T.
Here are some key points for VOD: Current share price: $27.87 The 52 week range is $24.31 to $29.46 Earnings estimates for 2012: $2.56 per share Earnings estimates for 2013: $2.69 per share Annual dividend: about 95 cents per share which yields about 3.4%
Telefonica SA (TEF) provides mobile phone, data, Internet, and other services in Spain. Because this company is facing headwinds from the weak economy and high unemployment in Spain, it is a higher risk stock and is likely to remain volatile. However, there are a number of positives to consider like the fact that even though Telefonica is based in Spain, it has significant operations in Latin America which is seeing fast growth. While the economic weakness in Europe could persist for awhile, recessions don't last forever. The long-term outlook for growth in mobile phones and the Internet remains bright. Because the stock is acting weak and it is likely to remain volatile, it only makes sense to consider a small position and average in over time.
Here are some key points for TEF: Current share price: $16.66 The 52 week range is $16.18 to $27.31 Earnings estimates for 2012: $1.77 per share Earnings estimates for 2013: $2.20 per share Annual dividend: $1.69 per share which yields about 10%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.