Renowned dividend-paying stocks are one of the best ways to value your savings. No matter how rough the stock markets are, your money is safe with those "high yielders" -- plus you get your dividends in time. As the Fed is willing to keep interest rates low, one should consider preferring high-yield bonds instead of risky investments. Significant dividends can be collected with these types of stocks, yet they remain protected.
Jim Cramer has just released a list of his favorite dividend plays, which attracts new buyers and pushes the prices up. I have mentioned the boldest of his stock choices in this article and added my own ideas on the safety and profitability of these names. Please keep in mind that these stocks are going through heck of a market catastrophe, along with all of the other stocks. The O-Metrix Scoring System is applied where possible. The following are the best dividend stocks as handpicked by Jim Cramer:
Stock Name | Ticker | O-Metrix Score | My Take |
Abbott Laboratories | (ABT) | 3.33 | Hold |
American Electric Power | (AEP) | 3.93 | Hold |
Coca-Cola | (KO) | 2.64 | Buy at $75 |
ConocoPhillips | (COP) | 8.97 | Buy |
Du Pont de Nemours | (DD) | 4.60 | Hold |
Source: Data are taken from Finviz/Morningstar. You can download the O-Metrix calculator here.
Abbott Labs -- Hold
Abbott stock has been enjoying its split-up news since October 2011, as well as expanding its pharma pipeline network. Boosting its dividend for 39 years in a row, the company has been a true profit maker for a very long time. Since mid-August, Abbott is up by 33.0%. The estimated annual EPS growth for the next five years is 7.5%, and with a beta value of 0.31, Abbott is one of the least volatile stocks among its peers. Its O-Metrix score of 3.33 is a little below the average.
Analysts' mean target price of $64.22 implies a 3.0% upside potential in the near term. With a 3.27% dividend, Abbott is a solid pick for dividend investors. However, revenue and profit margin fell in the first quarter of 2012, along with cash flow. As the stock is going for a split, I am quite optimistic for its future. However, you should also consider that Abbott is pushing through its 52-week high for a while. Therefore, a hold rating fits best for me.
American Electric -- Hold
American Electric is putting up a tough fight to break its fall and skyrocket, but it keeps experiencing bitter corrections. Most analysts have downgraded their calls on the utility in recent months. Besides, with a negative revenue growth and an awful PEG value of 3.8, investors shouldn't expect much from this name in the near term.
As a dividend stock, American Electric is a robust one with a 4.87% dividend and a 57% payout ratio. Despite underperformance, the utility is trading only nine times earnings and 12 times forward earnings. With an O-Metrix score of 3.93, the stock offers a gross margin of 62.7%. As soon as American Electric repositions its assets after the Ohio transitions are done, the management will have a breather in my opinion. Then we can see some progress. Holding would be OK for now.
Coca-Cola -- Buy Below $75
What a superb leapfrog! Coca-Cola is up by 6.5% in just three weeks. The stock has a massive upward momentum, which dragged the beverage titan to fragile levels. Trading only 1% below its 52-week high, Coca-Cola has a Relative Strength Index of 73.7.
No way the stock can go on like this. At some point, a serious breakdown is unavoidable. We all know that one of the greatest long-term stocks is Coca-Cola. The company recently declared a 50th consecutive annual dividend raise. Its debt-to-equity ratio is 0.5, crushing the industry average of 3.6. However, the stock is quite overbought for the time being, which will lead to a pullback. Just realize profits, buy anywhere below $75, and enjoy your short-term income. However, at the current valuation Coca-Cola is relatively expensive and has a poor O-Metrix score of 2.64.
ConocoPhillips -- Buy
Although going straight down for a while, ConocoPhillips is not a company just to leave behind. The stock has been one of the most profitable dividend stocks for decades, as is it now. With a single-digit P/E ratio and a solid cash flow, we have a real bargain here. The oil company offers a safe yield supported by a low payout ratio.
The stock has just spun off its downstream segment, Phillips 66 (PSX). Spin-offs usually return with green flags, and this will happen with ConocoPhillips as well. As an integrated oil company, ConocoPhillips is late to separate the relatively less profitable refining arm. The basic materials sector is in a downside movement, but I do not see any serious problem with ConocoPhillips. Revenue and cash flow seem very healthy, so count on its balance sheet. Insider transactions for the last six months have increased by 215.22%. You can keep shares of this name just for its dividend. Based on these numbers, ConocoPhillips has an A Grade O-Metrix score.
DuPont de Nemours -- Hold
Is there really any need to mention how excellent DuPont is? The company has a two-century long history. Since its dip in October 2011, DuPont returned around 37.3%. Analysts estimate an 8.3% annual EPS growth forecast for the next five years, which is a quite healthy number. The debt-to equity ratio is 1.2, more than doubling the industry average of 2.9.
DuPont is trading at a significant trailing P/E ratio of 14.1 and forward P/E ratio of 11.0. Based on 8.3% EPS growth estimate, DuPont has an average O-Metrix score of 4.60. The stock is fairly valued with a Relative Strength Index of 51.97%. With an ROE of 34.80%, DuPont has proved itself as a trustworthy stock to generate earnings growth. Revenue, assets, and cash flow are quite healthy. DuPont was a terrific bargain around October 2011. However, the shares climbed up so much that I have to suggest looking for cheaper stocks in the market. Just hold it if you own it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
