A big part of my dividend growth plan is to purchase quality dividend growth stocks that trade at attractive valuations. My next step is to re-invest dividends and allocate new cash contributions in the best opportunities available. However, the market has been steadily increasing over the past year, extending the bull run off the March 2009 lows. Many quality income stocks have participated in the general rise of stock indexes to highest levels since 2008. As a result, it is getting more difficult to find attractively valued, quality stocks.
The four income stocks identified below however, are still trading at attractive valuations that merit additions to my income portfolio subject to availability of cash. I identified them as the best ideas for 2012 and beyond in a stock picking competition. You can read more about the reasons why I selected these stocks in the first place in this article. The companies include:
PepsiCo, Inc. (NYSE:PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide. The company has raised distributions for 40 years in a row and has a ten year dividend growth of 13.30%/year. PepsiCo earned $4.03/share in 2011, and analysts expect EPS to hit $4.07 in 2012 and $4.43 in 2013. The sluggish expected growth in earnings has taken a toll on the rate of dividend growth in 2012, which was only 4.40%. The stock is attractively valued at 18.60 times earnings and yields 3.10%. (analysis)
The Procter & Gamble Company (NYSE:PG), together with its subsidiaries, engages in the manufacture and sale of a range of branded consumer packaged goods. The company has raised distributions for 56 years in a row and has a ten year dividend growth of 10.90%/year. Procter & Gamble earned $3.12/share in 2011, and analysts expect EPS to hit $3.89 in 2012 and $4.22 in 2013. The stock is attractively valued at 18.90 times earnings and yields 3.20%. (analysis)
Johnson & Johnson (NYSE:JNJ), together with its subsidiaries, engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company has raised distributions for 50 years in a row and has a ten year dividend growth of 12.40%/year. Johnson & Johnson earned $3.49/share in 2011, and analysts expect EPS to hit $5.07 in 2012 and $5.47 in 2013. The stock is attractively valued at 14.70 times earnings and yields 3.50%. (analysis)
Philip Morris International Inc. (NYSE:PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has managed to boost distributions at an average of 13.20% since its spin-off from Altria Group in 2008. Philip Morris International earned $4.85/share in 2011, and analysts expect EPS to hit $5.19 in 2012 and $5.76 in 2013. The stock is attractively valued at 17.80 times earnings and yields 3.80%.
Overall, Johnson & Johnson, Procter & Gamble and Phillip Morris International seem to have brighter earnings prospects, at least in the near term. PepsiCo, on the other hand, seems to have a pretty sluggish earnings growth picture ahead, as evidenced by the slowdown in dividend increases.
The following securities have generated 10.39% returns year-to-date, which is lower than the 16.44% YTD returns from S&P 500. The results of other bloggers are included below:
Where Does My Money Go +21.99%
Intelligent Speculator +17.52%
My Traders Journal +10.67%
Dividend Growth Investor +10.39%
Dividend Mantra +5.32%
Million Dollar Journey +4.49%
Passive Income Earner +1.34%
Wild Investor -2.21%
The Financial Blogger -11.04%
Beating the Index -13.77%
Disclosure: I am long JNJ, PEP, PG, PM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.