5 Solid Dividend Champs Yielding Over 6% To Buy For The Next 5 Years: 3 Now And 2 Later

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 |  Includes: CLF, CTL, FTR, PBI, WIN
by: David Alton Clark

The Gist

These five stocks are from S&P 500 U.S. companies with market caps of 2 billion or better which pay dividends yielding 6% or more. Furthermore, most of these stocks have great stories, positive catalysts for future growth and pay a hefty dividend.

Moreover, most of these stocks have recent upgrades and positive analyst comments. Some have recent negative comments or their earnings results and are down significantly presenting a buying opportunity. There may be more volatility in front of us with the recent run in the market, nevertheless, this may be a good point to start a position in these high-yield dividend-paying opportunities.

I posit an ideal investing approach is to construct a diverse portfolio of stocks with significant capital gain potential and exceptional dividend yields with the potential to generate money throughout the year. One reason to invest in dividend-paying stocks is they will be the investment of choice to fund the retirement of many Baby Boomers. This should create enormous demand for the stocks covered in this article.

These dividend-paying stocks have the potential for both capital gains and income production. Boomers will be looking for stocks that have a track record of increasing dividends. This will give them yet another hedge against inflation. This combination of capital gains and income production will be necessary to fund the lengthening retirement that comes with a greater life expectancy.

The Breakdown

In the following sections, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. The following table depicts summary statistics and Tuesday's performance for the stocks.

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Cliffs Natural Resources Inc. (NYSE:CLF)

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Cliffs pays a dividend with a yield of 6.15%. The company is trading 51% below its 52-week high and has 53% upside potential based on the analysts' consensus mean target price of $62 for the company. Cliffs was trading Tuesday for $40.64, down over 2% for the day.

Fundamentally, Cliffs has several positives. The company has a forward P/E of 5.14. Cliffs is trading for slightly less than book value. EPS next year is expected to rise by 30.10%. The company has a net profit margin of 24.43%.

Technically, Cliffs' situation looks bleak. The stock is definitely in a long-term down trend. All the major moving averages are sloping downwards. The stock recently bounced off a multi-year low of 35 and looks poised to test that number again. I would hold off on buying Cliffs until it tests $35 again. I think you will have a better entry point for this stock in September. Long term, I am bullish on the name, nevertheless, avoid it for now.

CenturyLink, Inc. (NYSE:CTL)

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CenturyLink pays a dividend with a yield of 6.99%. The company is trading 5% below its 52-week high and has 8% upside potential based on the analysts' consensus mean target price of $44.59 for the company. CenturyLink was trading Tuesday for $41.46, slightly down for the day.

Fundamentally, CenturyLink has some positives. CenturyLink's forward P/E ratio is 16.79 and the company is trading at 1.27 times book value. The company's revenue growth vastly surpassed the industry average of 7.4%. Revenues are up 171.8% year over year, although the company's net profit margin has hardly budged. Net operating cash flow has risen by 136% year over year as well.

Technically, CenturyLink seems priced for perfection. The stock is trading just 5% off its 52-week highs. The stock has been in an uptrend since achieving the golden cross at the beginning of the year. The continued rise in the stock price is based on guidance that the fundamentals will continue to improve. I believe you are safe starting a position at this level. For the ultra-conservative investor, hold off on starting a position until the stock pulls back 10% to the 200 day sma.

Frontier Communications Corporation (NYSE:FTR)

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Frontier pays a dividend with a yield of 8.62%. The company is trading 32% below its 52-week high and has 8% upside potential based on the analysts' consensus mean target price of $5.01 for the company. Frontier was trading Tuesday for $4.64, slightly down for the day.

Frontier has some fundamental positives. The company is trading for slightly over book value, 91% of sales and has a forward P/E of $17.19. The company's gross margin is 90%.

Technically, Frontier has been on a roll since May. The stock is up an amazing 26.43% over the last month. The golden cross appears destined to be achieved in the near future. I have been behind the stock since the $3 mark. The stock is a buy at this level. I see the recent pullback as an opportunity to start a position.

Pitney Bowes Inc. (NYSE:PBI)

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PBI pays a dividend with a yield of 10.99%. The company is trading 30% below its 52-week high and has 14% upside potential based on the analysts' consensus mean target price of $15.50 for the company. PBI was trading Tuesday for $13.65, slightly down for the day.

PBI has some fundamental positives. The company is trading for 53% of sales and has a forward P/E of 7.04. The company's net profit margin is 8.15%. According to Finviz.com, the company has an ROE of 1017%. The company is increasing profits margins and cash flow from operations is healthy.

Technically, PBI has been in a long-term downtrend. The stock just performed a double bottom by bouncing off the $12.31 mark twice since mid-May. If the stock can breach and hold above resistance at $15, the highest point between the troughs, the reversal pattern will be complete. Wait for this confirmation of a change in trend to occur prior to starting a position to reduce risk.

Windstream Corporation (NASDAQ:WIN)

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Windstream pays a dividend with a yield of 10.46%. The company is trading 20% below its 52-week high and has 15% upside potential based on the analysts' consensus mean target price of $11.04 for the company. Windstream was trading Tuesday for $9.56, up almost 2% for the day.

Windstream has some fundamental positives. The company is trading for one times sales and has a forward P/E of 16.48. Sales are up 50% quarter over quarter. The company's gross profit margin is 54%. The company has an ROE of 15%. The company is increasing profits margins and cash flow from operations is healthy. The company has taken in $1.60 per share of cash flow over the past 52 weeks.

Technically, Windstream has had a recent trend reversal. The stock has been in an uptrend since the start of June. The stock is currently testing support at the bottom of the trend channel. The stock is a buy here.

The Bottom Line

These stocks have solid long-term growth stories and pay hefty dividends. These facts coupled with the Fed's announcement that rates will remain at ultra-low levels for at least the next two years leads me to believe these stocks are a better hedge against inflation than fixed income instruments such as bonds and CDs. Factor this in with the statistic that historically dividend-paying stocks have outperformed non-dividend-paying stocks and you have a recipe for outstanding returns.

We are talking about buying and holding these stocks for over five years. Some may say that this means the entry point means little. I say that is nonsense. Since these will be long-term core portfolio holdings, take your time and build your full position slowly. If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk. CLF still looks like a falling knife. Avoid the stock until there is some sign of a trend reversal.

Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CTL, FTR, WIN, PBI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.