In a scarce-yield environment, in which the yield on a 10-Year Treasury bond is below 2%, high dividend stocks of stable companies represent safe havens that allow investors to generate meaningful income. Analysts are very bullish on some of these stocks, either due to the companies' capacities to boost investment income or their ability to outperform their peers and the market as a whole. Here are five choices of large cap dividend stocks that yield in excess of 4% per annum. All of the following equities currently carry a buy rating.
American Electric Power Company (NYSE:AEP) is an electric utility holding company providing generation, transmission and distribution services to customers in several U.S. states. The $18.6 billion company pays an annual dividend of $1.88, with a dividend yield of 4.9% and a payout ratio of 46%. The company's current dividend yield is 80 basis points above the industry's average and nearly three percentage points above the yield on the S&P500. Its peers, namely Dominion Resources (NYSE:D), Duke Energy (NYSE:DUK), and Consolidated Edison (NYSE:ED), pay 4.1%, 4.6% and 4.1%, respectively.
Although the company is presently showing negative revenue growth and is expected to see moderately slower earnings growth rates over the next five years compared to the average over the past five years, analysts remain bullish about the company's prospects and the stock's value. With a current P/E ratio of 9.4 and the forward P/E of 12.1, the electricity producer is now trading for $38.74 a share. Based on the average analyst target price of $41.6 a share, there is a potential for the shares to rise by another 7.4% within twelve months.
Bristol-Myers Squibb Company (NYSE:BMY): This $56.5 billion company is a consistent dividend payer, with a $1.36 annual dividend, yielding 4.1% based on the current stock price. The drug manufacturer's dividend yield is about on par with the industry's average and two percentage points above the yield on the S&P500. The yield on Bristol-Myers Squibb's stock compares with dividend yields of 4.7% on Eli Lilly (NYSE:LLY), and 4.3% on Merck (NYSE:MRK). The company's payout ratio is 61% of earnings, compared with 50% for Eli Lilly, and 77% for Merck.
While the company's earnings beat analyst expectations in the first quarter 2012, they are still forecast to drop 14% this calendar year to $1.96 a share and to remain mostly flat over the following five years. A company with a 21% profit margin and a presently attractive valuation relative to the industry as a whole, Bristol-Myers Squibb trades at 14.3 times its past earnings and 18.8 times its forward earnings. Its stock price is hovering close to the analysts' target price of $34.
The Pacific Gas and Electric Company (also known as PG&E) (NYSE:PCG) is an $18.7 billion holding company, the parent of one of the largest natural gas and electric utilities in the U.S, serving about 14 million customers in California. PG&E pays $1.82 in dividends annually, with a yield of 4.1%, on par with the industry's average and double that of the S&P500. This compares with the yields on SCANA Corporation (NYSE:SCG) of 4.3%, FirstEnergy (NYSE:FE) of 4.7%, and Wisconsin Energy Corporation (NYSE:WEC) of 3.3%. The company's payout ratio is relatively high at 87%, compared with the ratios of 65% for SCANA Corporation, 100% for FirstEnergy, and 46% for Wisconsin Energy.
With earnings per share that grew 4.7% to $3.58, PG&E beat consensus earnings estimate in 2011. It showed weak revenue growth, but crushed earnings estimates in the first quarter 2012, when its earnings jumped 53% to $0.89 a share on higher electricity rates and lower costs associated with a decline in natural gas prices. Trading $2.3 off its 52-week high, PG&E has a current P/E of 20.5 and a forward ratio of 14.3. The stock is hovering around its target price of $44.56 per share.
Lorillard (NYSE:LO) is a tobacco company marketing cigarette brands such as Kent, Maverick, Max, Newport, Old Gold, Satin and True. The $17.2 billion company is currently paying $6.2 per share in dividends, which translates into a dividend yield of 4.7%, slightly above the industry's average, and well above the 2% yield on the S&P500. Its peers, Phillip Morris (NYSE:PM) and Altria (NYSE:MO), yield 3.5% and 5.1%, respectively. The company pays 65% of its earnings in dividends, well below the payout ratio for Altria (96%), but above the ratio for Phillip Morris (58%).
Lorillard's earnings per share jumped 16.2% in 2011 to $7.88 a share. Even though earnings per share dropped in the first quarter 2012, missing analyst estimates, they are still projected to increase 10.2% this year. With a profit margin close to 15%, this tobacco marketer boasts a P/E of 16.4 and a forward ratio of 13.5. Trading at $131.48 a share, the stock price of this company has an upside potential of 6.7%, based on the analysts' target price of $140.22.
AT&T (NYSE:T) is a $193.5 billion holding company with subsidiaries engaged in the provision of wireless and wireline telecommunications services and sales of wireless equipment. The telecommunications giant has a dividend yield of 5.3%, which is half a percentage point above the industry's average and 265% above that for the S&P500. AT&T's main competitor, Verizon, yields 5.0%, while Sprint Nextel does not pay any dividend. The payout ratio for the company's dividend is extremely high, at 261% of earnings per share. It compares with the ratio of 231% for Verizon. Likely, the payout ratio will decrease as earnings growth accelerates.
AT&T's earnings dipped 4.3% in 2011; however, they beat the street consensus estimates in the first quarter 2012, rising 5.2% year-over-year. In 2012, earnings per share are expected to increase 8.6% on the year. They are forecast to rise 9% per year over the next five years. With a profit margin of 11.3%, AT&T has a current P/E of 47.6 and an attractive forward ratio of 12.8. At $33 per share, the company's stock is trading about its 52-week high and slightly above the analysts' target price of $32.87 a share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.