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5 Dividend Stocks Where Analysts Expect High Earnings

Includes: CM, COP, FCX, NTR, RIG
by: Insider Monkey

By Matt Doiron

Income investors should pay attention to a stock's dividend yield, but should also use a number of different techniques to determine whether or not the company will be able to sustain its current dividend payments over time. These would include evaluating a stock's forward earnings estimates, based on the consensus of Wall Street analysts, to ensure that a company is expected to generate substantial earnings compared to its market capitalization; as a bonus, in theory stocks with low earnings multiples should be less likely to deliver capital losses. Here are five stocks, which currently pay dividend yields of 4% or higher and are valued at less than 12 times forward earnings estimates:

Large oil and gas companies are generally trading at low earnings multiples, including ConocoPhillips (NYSE:COP), which is valued at 11 times expected earnings for next year. The company recently increased its quarterly dividend payment to 69 cents per share, which equates to an annual yield of 4.1%. We would note that revenue and net income have been down slightly from their levels a year ago, going by recent reports, and of course investors in ConocoPhillips would have to consider the commodity risk involved.

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Similarly to oil and gas, many analysts are bullish on offshore drillers since drilling activity tends to be high in periods of high oil prices. Transocean (NYSE:RIG) is expected to grow its earnings per share to $5.80 next year, making for a forward P/E of 8. At current prices and dividend levels its dividend yield is 4.6%, though it is certainly not a very defensive name as the stock's beta is 2.0. Still, it could be worth investigating on either a value or income basis. Earlier this year billionaire activist Carl Icahn took a large position in Transocean (research more stocks Icahn owns).

Also satisfying our criteria is Freeport-McMoRan Copper & Gold (NYSE:FCX). The company experienced a more than 30% drop in earnings last quarter compared to the second quarter of 2012, but the sell-side believes that business will recover and as a result the forward earnings multiple is only 9. We would be a bit skeptical of their optimism, and in addition we aren't fans of Freeport-McMoRan's recent decision to purchase two oil and gas producers. Because copper demand depends on macro conditions this is another stock tightly tied to the overall economy, with a beta of 2.3.

Potash Corp of Saskatchewan (POT) recently plunged about 20% following indications that a fellow potash producer is moving towards maximizing production (which would then lower prices). This has brought its valuation down to 11 times earnings, whether we consider either trailing results or consensus forecasts for 2014, though it's possible that analysts haven't fully adjusted for lower prices in their models yet. The fall in the stock price has brought the dividend yield close to 5%, but it's possible that the dividend could be cut if financials worsen.

A number of Canadian banks, including Canadian Imperial Bank of Commerce (NYSE:CM), also offer a combination of low earnings multiples and high yields. Canadian Imperial, specifically, pays a yield of 4.8% (though since it is a Canadian company interested investors should check to see what their tax status is in regards to foreign dividends). The trailing and forward P/Es are both 9, and the bank's net income increased by 8% in its most recent quarter compared to the same period in the previous year. If the tax issue appears satisfactory it and other Canadian banks could be worth a closer look.

Disclosure: I am long COP.

Business relationship disclosure: This article is written by Insider Monkey's writer, Matt Doiron, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.