Dividend stock investors want to align themselves with companies that provide moderate to high yields. In addition, many investors want these yields to be a reliable source of income. With this in mind, we cultivated a short list of large cap dividend stocks that all provide yields at a desirable level. In addition, we searched for stocks that appear to be offered at a discount. For many, this is the ideal time to get in on a dividend stock. To alleviate some of the concern that may be raised by the drop in price, we analyzed profit and only included those companies that have a strong track record of profitability. Use the summaries and graphs below as a starting place for your own evaluation.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
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 Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
We first looked for large cap dividend stocks. We next screened for businesses that are undervalued when company growth rate is taken into account (PEG Ratio < 1)(P/E<10). Next, we then screened for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM] >10%). We did not screen out any sectors.
Do you think these large-cap stocks have strong fundamentals? Use our screened list as a starting point for your own analysis.
1) Seagate Technology PLC (STX)
|Industry||Data Storage Devices|
|Price/Earnings to Growth Ratio||0.18|
|Operating Profit Margin||20.81%|
Seagate Technology Public Limited Company designs, manufactures, markets, and sells hard disk drives for enterprise storage, client compute, and client non-compute market applications worldwide. The company's products are used in enterprise servers, mainframes, and workstations; desktop and notebook computers; and digital video recorders, gaming consoles, personal data backup systems, portable external storage systems, and digital media systems. It also provides data storage services, including online backup, data protection, and recovery solutions for small and medium-sized businesses. The company ships external backup storage solutions under its GoFlex, Backup Plus, and Expansion product lines, as well as under the Samsung brand name; and network attached storage solutions under its GoFlex Home and BlackArmor product lines. Seagate Technology Public Limited Company sells its products primarily to original equipment manufacturers, distributors, and retailers. The company was founded in 1979 and is headquartered in Dublin, Ireland.
2) Vale S.A. (VALE)
|Industry||Industrial Metals & Minerals|
|Price/Earnings to Growth Ratio||0.47|
|Operating Profit Margin||41.26%|
Vale S.A. engages in the exploration, production, and sale of basic metals in Brazil and internationally. The company is also involved in fertilizers, logistics, and steel businesses. Its Bulk Material segment engages in the extraction of iron ore and pellet production, as well as operation of Brazilian northern and southern transportation systems, including railroads, ports, and terminals related to mining operations. This segment also includes manganese ore mining and ferroalloys activities. The company's Base Metals segment produces non-ferrous minerals, including nickel, copper, and aluminum; and is involved in aluminum trading, alumina refining, aluminum metal smelting, and bauxite mining activities. Its Fertilizers segment provides potash, phosphates, and nitrogen. The company's Logistic Services segment provides cargo transportation services for third parties through ships, ports, and railroads. In addition, Vale S.A. generates energy through hydroelectric power plants. The company was founded in 1942 and is based in Rio de Janeiro, Brazil.
3) SK Telecom Co., Ltd. (SKM)
|Price/Earnings to Growth Ratio||0.91|
|Operating Profit Margin||22.76%|
SK Telecom Co., Ltd. provides wireless telecommunications services principally in Korea. The company offers cellular voice services, including wireless voice transmission and related value-added services; wireless global roaming services; and interconnection services to connect its networks to fixed-line and other wireless networks. It also provides wireless data transmission services, such as wireless Internet access services, which allow subscribers to access online digital contents and services, as well as to send and receive text and multimedia messages; wireless entertainment-related contents and services primarily through content-specific portal sites; wireless finance-related contents and m-commerce services; and wireless news and search services comprising news content access, dictionary resources, and weather information services.
In addition, the company offers broadband Internet and fixed-line telephone services, such as video-on-demand and Internet protocol television services; and local, domestic, and international long-distance fixed-line telephone services to residential and commercial subscribers. Further, it provides international calling services, such as direct-dial; pre and post paid card calling services; bundled services for corporate customers; voice services using Internet protocol; Web-to-phone services; and data services. Additionally, the company offers satellite digital media broadcasting; telematics; and fixed-line and online community portal services.
It also operates 11th Street, an online shopping mall; and T Store, an online open marketplace for mobile applications. As of December 31, 2011, the company had approximately 26.5 million wireless subscribers. The company was formerly known as Korea Mobile Telecommunications Co., Ltd. and changed its name to SK Telecom Co., Ltd. in March 1997. SK Telecom Co., Ltd. was founded in 1984 and is headquartered in Seoul, South Korea.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/13/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.