5 Bulls Eye Dividend Picks for a Profitable Portfolio

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Includes: MO, PPL, RAI, T, WPZ
by: Efsinvestment

As I stated in my profile, I prefer investing in stocks with the highest dividend yield, along with admirable P/E ratios and strong upside potentials. It is always advantageous to invest in reasonably priced, high-yielding companies promising excellent EPS growth in the future. Therefore, I made a list of top five large-cap stocks offering dividend yields upwards of 5%, and showing a maximum P/E ratio of 20 (data obtained from finviz/morningstar, and current as of the July 18).

AT&T (NYSE:T): AT&T was chosen the best among four wireless service providers in the U.S. As of July 18, the telecom titan had a market cap of $179.50 billion, a P/E ratio of 8.97, and a forward P/E of 11.93. Analysts expect the company to have 5.90% EPS growth in the next five years, while it had 17.77% EPS growth during the last five. With a profit margin of 16.26%, shareholders enjoyed a 5.67% dividend last year.

AT&T returned 20.6% in a year. Debt-to assets ratio is slightly decreasing for the last five quarters. Earnings increased by 57.08% this year and 38.76% this quarter. Gross margin is 53.17%. Target price implies a 7.6% upside potential, while the stock is trading 5.01% lower than its 52-week high. Yields are consistent. Moreover, the stock just double topped. AT&T is a dividend stock pick for the next five years. If you are looking for a stable and large profit, then AT&T is your pick. Recent dividend payments of T per share are as follows:

Jul 6, 2011

$0.43

Apr 6, 2011

$0.43

Jan 6, 2011

$0.43

Oct 6, 2010

$0.42

PPL Corp. (NYSE:PPL): Founded in 1920, PPL generates and sells electricity in the United States. As of July 18, PPL had a market cap of $16.03 billion. P/E ratio is 11.58, and forward P/E is 11.67. Estimated EPS growth for the next five years is 8.10%. Profit margin is 26.01%, and the company pays a dividend yield of 5.04%.

Target price is $29.46, indicating a 6.8% upside movement potential. The stock is trading 2.20% lower than its 52-week high, while SMA200 is 6.48%. PPL had an admirable increase between mid-April and June. Earnings increased by 28.23% this quarter, and 101.32% this year. Insider transactions for the last six months have increased by 35.12%. What’s more, PPL is a dividend stock for the next five years. I believe PPL will be an outperformer. Recent dividend payments of PPL per share are as follows:

Jun 8, 2011

$0.35

Mar 8, 2011

$0.35

Dec 8, 2010

$0.35

Sep 8, 2010

$0.35

Williams Partners (NYSE:WPZ): WPZ will announce its Q2 earnings on Aug, 3. Oklahoma-based Williams had a market capitalization of $16.04 billion as of July 18. It shows a trailing ratio of 19.35 and a forward P/E of 15.16. Analysts estimate 6.97% EPS growth for the next five years, which is quite conservative given the 35.26% EPS growth of the last five years. With a dividend yield of 5.19%, WPZ had an 18.71% net profit margin last year.

Earnings increased by 34.29% this quarter. SMA50 is 5.40%, and SMA200 is 13.96%. Target price is $57.58, which indicates an about 4.5% increase potential. The stock is currently trading 1.31% lower than its 52-week high. Also, $1,000 invested in Williams Partners in March 2009 is worth approximately $5,975 now. Debt-to assets ratio was nearly stable for more than one year. WPZ is a trustworthy profit maker. Recent dividend history is:

May 4, 2011

$0.718

Feb 2, 2011

$0.703

Nov 3, 2010

$0.688

Aug 4, 2010

$0.673

Reynolds American (NYSE:RAI): RAI announced a $0.53 yield for this quarter. The tobacco company, as of July 18, had a market cap of $21.67 billion. It shows a trailing ratio of 15.69, and a forward P/E of 13.14. Analysts expect the company to have 6.70% EPS growth in the next five years, which is reasonable when its 6.37% EPS growth of the last five years is considered. With a profit margin of 16.18% and a dividend yield of 5.70%, Reynolds is a charming stock for dividend lovers.

Reynolds returned 32.1% in 12 months, while debt-to assets ratio is nearly stable. Yields are impressive. Earnings increased by 37.87% this year. Operating margin is 28.35%, and gross margin is 47.00%. Target price indicates a 6.1% upside movement potential, while the stock is trading 6.13% lower than its 52-week high. The company is a solid profit-maker. Recent dividend yields of Reynolds American per share are:

Jun 8, 2011

$0.53

Mar 8, 2011

$0.53

Dec 8, 2010

$0.49

Sep 8, 2010

$0.45

Altria Group (NYSE:MO): MO will report its Q2 results on July 20. As of July 18, the Virginia-based cigarette company had a market capitalization of $55.87 billion, a trailing ratio of 13.83, and a forward P/E of 12.24. Estimated EPS growth for the next five years is 6.48%. With a net profit margin of 23.9%, shareholders enjoyed a 5.70% dividend yield in 2010.

SMA200 is 6.53% and ROE is 82.69%. Also, $1,000 invested in MO 12 months ago is worth about $1,240 now. The company has had strong momentum since February 2009. Debt-to assets ratio is nearly stable for the last four quarters. Target price is $27.67, which implies a 4% increase potential. The company is trading 4.29% higher than its 52-week high. Insiders have been exercising options for a while. Altria is likely to go higher. This might be an opportune time to buy. Recent dividend history is as follows:

Jun 13, 2011

$0.38

Mar 11, 2011

$0.38

Dec 23, 2010

$0.38

Sep 13, 2010

$0.38

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.