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The companies that have long-term competitive advantage tend to have higher Gross Margin than those that don't. Gross margin shows the percentage of surplus generated per unit of the product or service sold. To have a high gross margin, a company should be efficient enough not only to recover the costs of the product or service sold, but also to provide extra income to cover costs of acceptance of risk, operating expenses, and the costs of debt.

We believe one of the best alternatives for conservative income investors is selecting dividend stocks with high gross margins. Among 113 stocks that were recommended on Jim Cramer's "Mad Money" during the last 30 days, we have selected our 6 favorite dividend stocks with high gross margins. All stocks in our list have gross margins higher than 50%, P/E ratios lower than 25 and dividend yields higher than 2.7%. We obtained market data from Finviz and hedge fund holdings from Insider Monkey.

Stock

Market Cap
(Billion $)

Sector*

Dividend Yield

P/E

Gross Margin

Intel Corporation (INTC)

139.7

1

3.0%

11.8

63.2%

The Coca-Cola Company (KO)

173.9

2

2.7%

20.4

60.5%

Cypress Semiconductor Corporation (CY)

2.2

1

3.1%

26.9

54.6%

El Paso Pipeline Partners (EPB)

7.2

4

6.0%

16.7

71.7%

Statoil ASA (STO)

82.0

4

4.4%

6.0

50.5%

Waste Management (WM)

15.7

3

4.2%

16.8

92.2%

1-Technology 2-Consumer Goods 3-Industrial Goods 4-Basic Materials

(Click to enlarge all images)

Intel Corporation is one of the major integrated digital technology platform producers operating worldwide. INTC has a 3% dividend yield but it has been increasing its dividends aggressively. INTC reported net income of $3.4 billion for the fourth quarter of 2011, up from $3.2 billion for the same quarter a year earlier. Shares of INTC gained 22.2% during the past 12 months. The stock has a market cap of $139.7 billion, P/E ratio of 11.8 and Total Debt/Equity ratio of 0.16. INTC also had an EPS growth rate of 22.8% during the last five years. Hedge funds agree with Cramer's judgments about INTC as well. There are 42 hedge funds with INTC positions at the end of the third quarter. For example, Ken Fisher's Fisher Asset Management had $414 million invested in INTC. Jim Simons' Renaissance Technologies also invested $200+ million in this stock.

The Coca-Cola Company is the world's largest beverage company. Shares of KO recently traded at $77.08 and have a 2.7% dividend yield. KO gained 18.8% during the past 12 months. The stock has a market cap of $173.9 billion, P/E ratio of 20.4 and Total Debt/Equity ratio of 0.95. KO also had an EPS growth rate of 11.3% during the last five years. KO is the largest position in Berkshire Hathaway's portfolio. As of December 31, 2011, the fund had nearly $14 billion invested in KO. Other hedge funds like KO too. There were 44 hedge funds with KO positions in their 13F portfolio at the end of the third quarter. Besides Buffett, Boykin Curry and Stephen Mandel were also bullish about KO.

Cypress Semiconductor Corporation provides mixed-signal and programmable solutions worldwide. Shares of CY recently traded at $14.11 and have a 3.1% dividend yield. CY lost 30.2% during the past 12 months. The stock has a market cap of $2.2 billion, P/E ratio of 26.9 and Total Debt/Equity ratio of 0.16. CY also had an EPS growth rate of 48.9% during the last five years.

El Paso Pipeline Partners provides storage and transportation services of natural gas in the United States. Shares of EPB recently traded at $33.56 and have a 6% dividend yield. EPB gained 2.9% during the past 12 months. The stock has a market cap of $7.2 billion, P/E ratio of 16.7 and Total Debt/Equity ratio of 2.03. EPB also had an EPS growth rate of 12.3% during the last five years. Jim Simons' Renaissance Technologies initiated a $5 million brand new position in EPB during the last quarter of 2011.

Statoil ASA is a Norway based integrated energy company operating worldwide. Shares of STO recently traded at $26.04 and have a 4.4% dividend yield. STO gained 2.9% during the past 12 months. The stock has a market cap of $82 billion, P/E ratio of 6 and Total Debt/Equity ratio of 0.47. STO also had an EPS growth rate of 9.3% during the last five years.

Waste Management provides waste management in North America. Shares of WM recently traded at $34.02 and have a 4.2% dividend yield. WM lost 8.3% during the past 12 months. The stock has a market cap of $15.7 billion, P/E ratio of 16.8 and Total Debt/Equity ratio of 1.6. WM also had an EPS growth rate of -0.6% during the last five years. Ray Dalio's Bridgewater Associates and Andrew Sandler's Sandler Capital Management both initiated more than $8 million brand new positions in WM during the last quarter of 2011.

Source: Jim Cramer's 6 Favorite Dividend Picks With Excellent Gross Margins