2 Dividend Stocks That Suddenly Look Cheap Thanks To The Market Pullback

Includes: MCD, MO
by: Hawkinvest

The markets went into rally mode ever since the Federal Reserve announced QE3, but earnings season is upon us now and that has suddenly changed the dynamics. A round of disappointing earnings from well-known companies has spooked investors and led to triple-digit point declines for the Dow Index on at least three days in just the past week alone. While some stocks were clearly priced for perfection after the recent rally, others were already at reasonable levels and are even cheaper now after the tough few days we have seen in the market.

Since interest rates are poised to remain at low levels, the demand for dividend-paying stocks is likely to stay strong. For the past couple of years, investors who have used a "buy the dips" strategy with dividend stocks have done well. The recent market weakness is not likely to change those trends, which is why investors should consider buying the recent pullback in these dividend stocks:

Altria Group, Inc. (NYSE:MO) shares were hitting new 52-week highs just a few weeks ago at about $36, however, the market pullback and concerns over Europe has taken this stock back down to around $32 per share. This is important and probably a solid buying opportunity because it is close to a key support level. This stock has a 200-day moving average of $31.75, and since the shares are near that level now, it could be the right time to buy cheap since the stock appears to have strong support at that level. The other reason why this stock might have limited downside at this level is the dividend, which currently yields about 5.4%. Altria has a history of dividend growth. For example, in June, 2008, the dividend was 29 cents per quarter, but now the dividend is 41 cents per quarter, which represents an increase of about 30%. Altria also has a product line that sells even in tough times as it owns tobacco and wine brands that are global leaders such as: Marlboro, Virginia Slims, Parliament, Benson & Hedges, Chateau Ste. Michelle, Columbia Crest and many others.

Here are some key points for MO:
Current share price: $33.30
The 52-week range is $26.80 to $36.29
Earnings estimates for 2012: $2.21 per share
Earnings estimates for 2013: $2.38 per share
Annual dividend: $1.76 per share, which yields 5.4%

McDonald's Corporation (NYSE:MCD) shares have been in a trading range for the past couple of months, going from about $86 to around $94 per
share. With the stock now near the low end of the range, it makes sense to start accumulating shares of this leading value-oriented restaurant. Investors have sold off the stock due to the recent market drop and also because the company reported financial results, which were below expectations. For the third quarter, net income was $1.46 billion, or $1.43 a share, from $1.51 billion, or $1.45 a share, a year earlier. This was a 3.5% drop and it also missed consensus estimates by 4 cents. However, current weakness appears to be a short-term blip since this company is well-positioned to grow in emerging markets. Since it offers value meals, it is also poised to ride out economic weakness with relative strength when compared with many higher-priced restaurant chains. McDonald's shares are also likely to find support at current levels due to the dividend, which currently offers a 3.5% yield. This company has raised its dividend annually since 1976, and it recently raised the payout by 10%, from 70 cents to 77 cents per quarter.

Here are some key points for MCD:
Current share price: $88.07
The 52-week range is $85.92 to $102.22
Earnings estimates for 2012: $5.34 per share
Earnings estimates for 2013: $5.83 per share
Annual dividend: $3.08 per share, which yields 3.5%

Data sourced from Yahoo Finance. No guarantees or representations are made.

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

Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.