Do you consider yourself a dividend investor, looking for strong yields and sustainable payouts? One place to search is among large cap stocks, which can offer stability not often found among smaller cap peers. Today we focused on large cap stocks with commendable dividends, yet that also look undervalued from their price-multiple ratios. To only keep the cream of the crop, we took only those stocks that have been given positive analyst ratings. Our screen produced a short but diverse list of companies - we hope you enjoy.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
We first looked for large cap stocks that have a high dividend yield (Div. Yield > 5%). From here, we then looked for companies that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). From here, we then looked for companies that are trading at a discount (P/E<10)(P/S<1). We did not screen out any sectors.
Do you think these large-cap stocks should be priced higher? Use our list to help with your own analysis.
1) France Telecom (FTE)
|Industry:||Telecom Services - Foreign|
France Telecom has a Dividend Yield of 15.03%, a Payout Ratio of 95.07%, an Analysts' Rating of 2.00, a Price/Earnings Ratio of 6.85, and a Price/Sales Ratio of 0.57. The short interest was 0.09% as of 06/18/2012. France Tlcom SA provides fixed telephony and mobile telecommunications, data transmission, Internet and multimedia, and other value-added services to consumers, businesses, and telecommunications operators under the Orange and France Telecom brand names. It also offers personal and home communication services, legacy and mature network services, and international carriers and shared services for enterprises; VoIP, image, and videoconferencing services; and data infrastructures, such as satellite access, WiFi, and fiber optics. In addition, the company provides platform services, including customer relationship management, messaging, hosting, cloud computing, security solutions, infrastructure applications management, and machine-to-machine services; collaborative services comprising consulting, integration, and project management; and sales of equipment associated with integration services.
2) Total SA (NYSE:TOT)
|Industry:||Major Integrated Oil & Gas|
Total SA has a Dividend Yield of 6.82%, a Payout Ratio of 42.84%, an Analysts' Rating of 1.90, a Price/Earnings Ratio of 6.62, and a Price/Sales Ratio of 0.48. The short interest was 0.33% as of 06/18/2012. TOTAL S.A., together with its subsidiaries, operates as an integrated oil and gas company worldwide.
3) Eni SpA (NYSE:E)
|Industry:||Major Integrated Oil & Gas|
Eni SpA has a Dividend Yield of 6.51%, a Payout Ratio of 46.60%, an Analysts' Rating of 2.20, a Price/Earnings Ratio of 7.46, and a Price/Sales Ratio of 0.57. The short interest was 0.13% as of 06/18/2012. Eni SpA, an integrated energy company, engages in the exploration, production, transportation, transformation, and marketing of oil and natural gas. The company is also involved in the production and sale of electricity; refining and marketing of petroleum products; and production and sale of petrochemical products and hydrocarbons. In addition, it engages in the offshore and onshore hydrocarbon field construction.
*Company profiles were sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.