Best High-Yield Dividend Stocks To DRIP, Part 1

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Includes: AA, BK, COP, DUK, K
by: Vatalyst

Dividend Reinvestment Plans (DRIPs) are becoming quite popular amongst income investors. These plans allow the flexibility to existing shareholders to reinvest their dividends to purchase more shares in whole or part. With many companies offering DRIPs to investors without any commission fees, it becomes difficult to pick the best ones. Here are some of the stocks that have promising financial results and a strong dividend history backing their DRIPs:

Bank of New York Mellon Corporation (NYSE:BK)

The Bank of New York Mellon (BK), like the rest of its peers in the banking industry, has suffered at the hands of the economic downturn wave. The financial services firm has been given a negative by the credit rating services Moody’s but other credit rating services such as S&P, Fitch and DBRS have projected a stable outlook, both for the short as well as long term.

On July 19, 2011, the bank released its second quarter results. The results showed some strong numbers in net income applicable to common shareholders of $735 million ($0.59 per common share). The EPS grew 9% from last year’s second quarter figures of $0.54 for a total shareholding of $658 million. The net income in the first quarter of 2011 was $625 million, or $0.50 per common share. The 18% growth in EPS in the recent quarter was mainly due to a growth in fees and net interest revenue. Expense growth was high due to legal and regulatory costs. The bank management is planning to take aggressive measures to cut down costs by minimizing expenses.

The dividend repurchases contributed significantly to the financial health of BK and are on a rise as dividends are increasing. Quarterly common stock dividends of $0.13 were paid on August 9, 2011, to record shareholders as of July 29, 2011. The current dividend payout ratio is 17%.

Revenue grew 15% to $3.8 billion as compared with the second quarter 2010, and 5% in the first quarter 2011. The current share price of BK is $19.95 with the 52-week range of $18.77-$32.50.

The competitors such as Barclays PLC (NYSE:BCS), JPMorgan Chase & Co. (NYSE:JPM) and State Street Corp. (NYSE:STT) have PE ratios of 9.9, 7.4 and 10.5, respectively. The return on equity for BK is 8.1% whereas ROE for BCS, JPM and STT are 5.8%, 11.6% and 8.3%, respectively. Their dividend payout ratios are 15%, 5% and 1%, respectively.

Alcoa Inc. (NYSE:AA)

Alcoa Inc. (AA), an aluminum production and management company, released its results for the second quarter of 2011. Revenue rose 11% as compared with the previous quarter and 27% versus the second quarter of 2010. Including the impact of restructuring and other special items, the income from continuing operations was $326 million, or $0.28 per share. Excluding special items, the income grew 14% sequentially and 146% to $364 million, or $0.32 per share. There was a negative currency impact of $27 million mainly driven by the Australian dollar.

Though the firm reported record figures in quarterly production, shipments and revenue, the third quarter is set to continue dealing with issues such as inflation of energy, caustic and other raw materials. In the prime metals sector, additional energy costs of $33 million are expected to arise due to structural increase in European energy. Chinese demand for the flat-rolled products is expected to slow down for the third quarter despite a high demand during the second quarter.

The company declared a quarterly common stock dividend of $0.03 per share payable August 25, 2011, to shareholders of record on August 5, 2011, and a quarterly dividend of $0.93 per share on Alcoa’s $3.75 cumulative preferred stock payable October 1, 2011, to shareholders of record on September 9, 2011. The dividend payout ratio of AA is 50% and the annualized dividend and yield is $0.12 and 1.00%, respectively. The current share price is $12.04 with a 52-week range of $10.32-$18.47. Dividend growth has reduced 29.32% and 43.91% over periods of 5 years and 3 years, respectively.

Competitors such as Aluminum Corporation of China Limited (NYSE:ACH) have reported a return on equity of 1.1% and paid no dividends.

ConocoPhillips (NYSE:COP)

In July 2011, the global integrated energy company reported second quarter earnings of $3.4 billion and $3.4 billion in adjusted earnings. The second quarter earnings for the previous year were $4.2 billion and the adjusted earnings were $2.5 billion. The high earnings primarily arose out of strong production performance, better commodity prices and refining margins and refinery capacity utilization of over 90%.

COP announced its quarterly dividends in May and July 2011. Dividends of 66 cents per share were distributed on June 1, 2011, to stockholders of record at the close of business on May 23, 2011, and September 1, 2011, to stockholders of record at the close of business on July 25, 2011. The dividend payout ratio of the company is 28% and the current dividend yield is 4%. The dividend growth rate is 10.17% for the last 5 years and 7.84% for the last three years.

The current share price of COP is $66.44 with a 52-week range of $53.59 - $81.80.

Industry peers such as BP plc. (NYSE:BP), Chevron Corp. (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) have dividend yields of 4.60%, 3.20% and 2.60%.

Duke Energy Corporation (NYSE:DUK)

Duke Energy is the largest electric power holding corporation in the U.S. The first quarter 2011 results for Duke Energy contained adjusted diluted EPS of 39 cents and diluted EPS of 38 cents. The figures were higher compared with the 36 cents in adjusted diluted EPS and 34 cents in diluted EPS. Reduced corporate costs and strong financials of Duke Energy International, the power plant investments and the modernization programs contributed to the increase in the earnings for the quarter. However, the unfavorable weather conditions, and high operational and maintenance costs had a negative impact on the earnings.

For the year 2011, the company aims to achieve earnings guidance range of $1.35 to $1.40 per share. Duke Energy has been successful in reducing its net expenses from continuing operations to $45 million from $146 million in 2010. The decrease was due to the donation to the Duke Energy Foundation, lower corporate governance costs, office consolidation and a voluntary employee separation program.

Duke Energy has been paying string dividends to its shareholders since the last 84 years. The dividend growth rate over the last 3 years is 3.09%.

DUK plans to pay cash dividend of $0.25 per share to common stockholders of record at the close of business August 12, 2011, payable on September 16, 2011. The previously announced dividend was $0.005 less than the newly revised dividend. The dividend payout ratio is 97% and the dividend yield is 5.3%. The firm plans to achieve a long-term payout range of 65% to 70% of adjusted diluted EPS.

Companies in the electric utilities industry such as American Electric Power Co., Inc. (NYSE:AEP) and Progress Energy Inc. (PGN) have dividend payout ratios of 68% and 84%, respectively.

Kellogg Company (NYSE:K)

On July 28, 2011, Kellogg declared results for the second quarter. The processed foods firm reported net sales growth of 11 percent to $3.4 billion. Excluding the impact of foreign currency translation, internal net sales grew 6 percent. Reported earnings increased 19% from the second quarter 2010 to $343 million, or $0.94 per diluted share. Operating profit of $543 million rose 12 percent on a reported basis and 8 percent on an internal basis. Strong performance, innovation and better pricing strategies in first half of 2011 were helpful in offsetting high input costs.

Cash flow from operating activities less capital expenditures of $403 million dropped 9.6% in first half of 2011 as compared with the first half of 2010. Almost $500 million of shares were repurchased in the first half of 2011 and another $190 million of shares were repurchased by Kellogg in the second quarter. The repurchases took place under the $2.5 billion three-year share repurchase authorization.

The company projected its full-year 2011 internal net sales growth guidance within a range of 4 to 5 percent and internal operating profit guidance of approximately flat two percent year-over-year. Earnings per share are expected to be in the range of $3.33 to $3.40, excluding any impact of foreign exchange. EPS guidance of $3.42 to $3.49 is expected due to a foreign exchange benefit of approximately $0.09.

Kellogg declared its dividends of $0.43 to stockholders of record at the close of business September 1, 2011, payable on September 15, 2011. The annualized dividend is $1.24 and the dividend payout ratio is 47%. The 5-year dividend growth rate is 7.50% whereas over three years, it is 0.21%.

General Mills Inc. (NYSE:GIS) reported dividend payout ratio of 41% whereas Ralcorp Holdings Inc. (RAH) distributed no dividends at all.

Continue to Part 2 >>

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

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