Seeking Alpha
Profile| Send Message|
( followers)  

Except for REITs, double-digit high yielders are sometimes too good to be true. They have problems keeping the dividend that high. It is those with great yield (3-8%), favorable valuation (low enterprise value/EBITDA ratio), medium sized ($5 billion to $20 billion) companies that may be the best class of dividend stocks for the long run.

The following companies have been profitable. They have a very favorable valuation with EV/EBITDA ratio below 10. And they pay a nice dividend between 3-8%. The cash payout by itself provides a good margin of safety for the investment.

AFLAC Inc. (NYSE:AFL) is an accident & health insurance company. It has a market cap of $19.22 billion. The company pays a dividend of 3.20%. Aflac provides supplemental health and life insurance. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. At a P/E ratio of 8.17, the stock appears fairly cheap in valuation. I like this company with an undervalued stock, reflected in a low PEG ratio. AFLAC has an enterprise value / EBITDA ratio of 5.58. It has a profit margin of 10.17%. Both its revenue and earnings grew in double digits over the latest quarter, by 20.30% and 101.80%, respectively.

Darden Restaurants, Inc. (NYSE:DRI) is a restaurants company. It has a market cap of $6.43 billion. The company pays a dividend of 3.40%. Darden operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, and Seasons 52 brand names. It has a reasonable P/E ratio of 14.01. The PEG ratio is slightly above one, not much a concern of valuation. Darden has an enterprise value / EBITDA ratio of 7.79. Since EV/EBITDA ratio already considers the debt burden, the valuation is quite cheap. Its profit margin was 5.95% over the past year, typical for this line of business. Its revenue grew by 3.80% and its net income improved by 10.00% during the most recent quarter. The recent trading volume is about average. This month, 10.30 million shares are being shorted.

Eaton Corporation (NYSE:ETN) is an industrial electrical equipment company. It has a market cap of $12.87 billion. The company pays a dividend of 4.00%. Eaton Corporation operates as a diversified power management company worldwide. At a P/E ratio of 9.54, the stock appears fairly cheap in valuation. The sub-one PEG ratio suggests it's somewhat undervalued. Eaton has an enterprise value / EBITDA ratio of 7.07. It has a profit margin of 8.48%. Its revenue grew by 4.10% and its net income improved by 8.40% during the most recent quarter. It operating cash flow is 1.45 billion, and its free cash flow is 764.38 million. Both are quite healthy for a company of this size. This month, 14.55 million shares are being shorted. Comparing to 6.52 million shares shorted over the previous month, the shared short has increased by 123%. The short ratio of Eaton is 3.00, accounting for 4.60% of floating shares.

Koninklijke Philips Electronics NV (NYSE:PHG) is an electronic equipment company. It has a market cap of $17.97 billion. The company pays a dividend of 4.20%. Koninklijke Philips engages in the healthcare, consumer lifestyle, and lighting product businesses worldwide. Its price/book ratio is 1.15. Koninklijke Philips has an enterprise value / EBITDA ratio of 6.17. The EV/EBITDA ratio indicates this company is cheap. Koninklijke Philips' operating margin of 5.72% is acceptable. Its revenue grew by 6.70% and its net income improved by 81.00% during the most recent quarter. Thinning trading volume suggests that trading interest in the company is waning.

Philippine Long Distance Telephone Company (NYSE:PHI) is a telecom services in the Philippines. It has a market cap of $12.62 billion. This company pays out a nice dividend of 5.10%. Philippine Long Distance Telephone has an enterprise value / EBITDA ratio of 7.42. I like Philippine Long Distance Telephone Company's operating margin of 32.22%, a good sign for the company's financial health. Its return on assets is 9.41%. Its return on equity is 27.39%. Both are really good. Its revenue grew by 13.80% and its net income declined by 6.10% during the most recent quarter. Stable trading volume suggests a relatively calm market.

Seagate Technology PLC (NASDAQ:STX) is a data storage devices company. It has a market cap of $9.92 billion. The company pays a dividend of 4.30%. Seagate designs, manufactures, markets, and sells hard disk drives for enterprise, client compute, and client non-compute market applications worldwide. At a P/E ratio of 5.28, the stock appears fairly cheap in valuation. The PEG ratio is much lower than one. Seagate has an enterprise value / EBITDA ratio of 3.51. The EV/EBITDA ratio indicates this company is cheap. Investors should watch for the waning effect of the flood in Thailand last year.

Willis Group Holdings Public Limited Company (NYSE:WSH) is an insurance brokers company. It has a market cap of $6.22 billion. The company pays a dividend of 3.00%. Its ex-dividend date is tomorrow, 6/27. Willis provides a range of insurance brokerage, reinsurance, and risk management consulting services to its clients worldwide. Its price shows near term weakness, close to 52-week low (only 8.35% higher). While the stock appears it might have bottomed, investors should proceed with caution. Its P/E ratio of 16.00 is on the expensive side. Its PEG ratio is close to one, not yet a strong sign of overvaluation. Willis has an enterprise value / EBITDA ratio of 9.57. This is a reasonable valuation. It operating cash flow is 494.00 million, and its free cash flow is 384.25 million, both are nice numbers for a company of its size. Recently, the stock is not traded actively.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: The Best Class Of Dividend Stocks: Midsized Companies With Favorable Valuations