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Following a number of high profile earnings misses late in the week; including General Electric (NYSE:GE), Google (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT), stocks experienced a significant sell-off on Friday, October 19. As a whole the markets were down, with the NASDAQ leading the way (-2.3%). As dividend growth investors, market sell-offs often signal buying opportunities, and this is another case of that. Following the sell-off, a number of high-quality dividend-paying stocks can be purchased at a discount.

General Electric

GE was one of the high-profile earnings misses that caught the eye of investors. However, after pouring over the results and really trying to digest the earnings data I believe the earnings report from GE, while missing estimates, was a positive report. GE has expanded its margins, re-affirmed full-year guidance, has been meeting its goals in shrinking GE Capital as a percentage of the company, and has delivered strong earnings growth year-to-date. A more complete analysis of the earnings report can be found here.

During Friday trading, GE's stock price fell 3.5%, and shares could be bought for right around $22. At this price, and with looking at some key statistics, GE appears to be a buy.

Price

$22.01

TTM P/E

14.7

Est. EPS Growth (5yrs)

11.95%

Annual Dividend/Yield

$0.68/ 3.08%

Payout Ratio

45% (TTM earnings)

I previously wrote, and still believe, that GE is a buy up to $22.25, at which point investors should be a bit more cautious. Long-term growth is strong for GE. The company has focused its business on high margin industrials, and industrials have seen near double-digit growth in 2012. In addition, GE Capital continues to get stronger and has paid $5.4 billion in dividends to the parent company year-to-date. While the current dividend yield sits at 3% a dividend hike is likely forthcoming in December, as the company has increased its dividend in December two consecutive years. The underlying business at GE is a source of strength, and investors who buy in now will be rewarded with growing capital and steadily increasing dividends.

CSX Corp (NYSE:CSX)

CSX is one of two of the east coast's large rail companies [Norfolk Southern Corp. (NYSE:NSC) is the other]. On October 16, CSX reported earnings per share of $0.44 for Q3 2012 which beat analyst estimates by one cent; however, revenue came in $40 million below estimates at $2.98 billion. CSX attributed the revenue drop to decreasing coal shipments, which fell 16% from the same period in 2011. Total volume for CSX dropped 1.2% for the quarter, although excluding coal shipments, volume increased 3.5%.

Despite a reasonably solid earnings report, CSX shares fell 1.5% over the course of the week, and currently trade with a share price of $21.08. CSX also appears to be a buy at the current trading level.

Price

$21.08

TTM P/E

11.93

Est. EPS Growth (5yrs)

13.10%

Annual Dividend/Yield

$0.56/ 2.62%

Payout Ratio

31%

While management did stress the company is being challenged by the soft economy, and that decreasing coal shipments will remain a challenge for the foreseeable future, this news has already been priced into shares. Excluding the decrease in coal shipments shipping volumes increased year on year, and as fuel prices continue to increase the advantage of using efficient rail and intermodal transport will encourage more and more use of the rail system. CSX appears significantly undervalued trading well below the five-year average P/E of 14.2, and appears to have strong growth opportunities ahead. I would consider buying into CSX stock up to $21.75.

Cisco Systems Inc. (NASDAQ:CSCO)

Cisco is a market leader in the world of designing and selling Internet Protocol-based networking and other communications equipment. The company has a market cap of nearly $100billion, and over the past 12 months has generated revenue in excess of $46 billion. Cisco did not report earnings this week, but has suffered significantly as the tech sector as a whole has been punished. For the week, shares of CSCO fell 2.5%, and currently trade at $18.07. I felt CSCO was near a buy in the mid-18s, and I believe it is an even better buy now.

Price

$18.07

TTM P/E

12.49

Est. EPS Growth (5yrs)

7.85%

Annual Dividend/Yield

$0.56/ 3.01%

Payout Ratio

18.67%

With the stock yielding 3%, and trading well under the five-year P/E (16.59), CSCO appears to be a value purchase at this level. Earnings growth is expected to be moderate in the years ahead, but as businesses invest in network enhancements CSCO could easily outperform. Investors who buy in at this level should see prices recover and continue growing, and receive dividend payments that grow as well.

International Business Machines (NYSE:IBM)

IBM reported earnings per share of $3.63 for Q3 2012, which was generally in line with analyst expectations. While earnings per share did meet expectations, total revenue fell 5% year on year to $24.75 billion; and management issued full-year EPS guidance of at least $15.10, which was below the analyst consensus of $15.14. Early this week I wrote an article detailing how and why I believed IBM was a stock dividend growth investors should watch, following an initial sell-off as a result of a weak earnings report. In that article I made a suggestion that I would look closely at IBM if the stock were to fall to or below $195. Well that wish has been granted, and as of this writing, IBM trades with a current share price of $193.36.

Price

$193.36

TTM P/E

14.03

Est. EPS Growth (5yrs)

9.97%

Annual Dividend/Yield

$3.40/1.74%

Payout Ratio

22.76%

IBM shares sport a full-year 2012 P/E of 12.8 based upon the low-end estimate issued by the company, while the company has a five-year average P/E of 13.23. This implies that the stock may be somewhat undervalued at this level. In addition to just being simply undervalued, IBM has strong growth prospects ahead of it. The company has been able to deliver well in key growth areas, and expects to maintain near double-digit earnings growth for the years ahead. Currently yielding just 1.74%, IBM has a relatively low dividend; however the company has plenty of room to grow the payment. IBM is facing some potential headwinds from future slowdowns in government spending, but Big Blue gets most of its revenue from the private sector. While the stock may move lower in the weeks ahead, IBM looks like a great buy at these levels for long-term investors.

Conclusion

Earnings season often provides great opportunities for dividend-growth investors. When great companies experience hiccups and speed bumps prudent investors can find quality companies at favorable valuations. Buying great companies at great valuations is a recipe for investing success. Investors need to evaluate the companies and ensure that the underlying business is strong and fundamentally sound before investing. Dividend-growth investors always strive to find high-quality companies on sale, and weak earnings reports often provide chances to do just that, but high-quality companies don't stay on sale for long.

Source: 4 Great Dividend Stocks On Sale