4 Dividend Stocks Showing You The Money

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Includes: LMT, MRK, PAYX, RIG
by: Vatalyst

This article will evaluate four high-yield dividend stocks to determine if they have what it takes to make investors money.

Paychex Inc. (NASDAQ:PAYX) Paychex has a market cap of $9.48 billion with a price-to- earnings ratio of 18.44. The stock has traded in a 52-week range of between $25.12 and $33.91. The stock is currently trading at around $26. The company’s fourth quarter revenue for the period ending on May 31, was $523 million, compared with revenue of $496 million for the fourth quarter of the prior year. Fourth quarter net income was $119 million compared with net income of $116 in the fourth quarter of the prior year.

Paychex’s primary competitor is Automatic Data Processing Inc. (NASDAQ:ADP). ADP is currently trading at about $48 with a market cap of $23.66 million and a price-to- earnings ratio of 18.44. ADP pays a dividend, which yields 3% versus Paychex, whose dividend yields 4.8%.

Paychex manages payrolls for small companies. The company’s earnings have been hurt because small companies have suffered from the economic slowdown. The company’s net income has decreased in each of the last two years. In spite of the downturn in net income, the company has continued to pay dividends. The company has paid a quarterly dividend for more than twenty years and has increased the dividend by 93.75% over the last five years. The company has a pristine balance sheet with $464 million in cash and no debt. The stock price is up by 3.1% over the last 52 weeks, and it is down by 13% over the last three years. Paychex is a company that offers little hope for stock appreciation but pays a steady dividend income. I think there are many companies that offer more investment potential than Paychex. I rate Paychex as a hold.

Merck & Company (NYSE:MRK) Merck has a market cap of $98.59 billion with a price-to- earnings ratio of 34.48. The stock has traded in a 52-week range of between $29.47 and $37.68. The current stock price is around $32. On July 29, the company reported second quarter revenue of $12.2 billion, compared with revenue of $11.3 billion in the second quarter of 2010. Second quarter net income increased to $2.02 billion from $752 million in the second quarter of 2010.

One of Merck’s biggest competitors is Glaxo Smith Kline (NYSE:GSK). Glaxo is currently trading around $41 with a market cap of $104.48 billion and a price-to-earnings ratio of 20.47. Glaxo pays a dividend, which yields 5.1% compared with Merck, whose dividend yields 4.8%.

Merck net income decreased from $12.9 billion in 2009 to $859 million in 2010. The company pays regular quarterly dividends but has not increased its dividend since 2004. The stock price is down by 13.12% over the last 52 weeks and has increased by only 7.9% over the last three years. Merck offers a steady dividend but not much potential for stock appreciation. Also with a price-to-earnings ratio of 34.48, the stock is not cheap. I rate Merck & Company as a hold.

Lockheed Martin Corporation (NYSE:LMT) Lockheed Martin has a market cap of $24.07 billion with a price-to-earnings ratio of 9.05. The stock has traded in a 52-week range of between $66.36 and $82.43. The stock is currently trading at about $72. On July 29, the company reported second quarter revenue of $11.6 billion, compared with revenue of $11.4 billion in the second quarter of 2010. Second quarter net income was $742 million compared with net income of $825 million in the second quarter of 2010.

Lockheed Martin’s biggest competitor is Boeing Company (NYSE:BA). Boeing is currently trading around $62 with a market cap of $46.24 billion and a price-to-earnings ratio of 13.19. Boeing pays a dividend, which yields 2.7% versus Lockheed Martin, whose dividend yields 4.2%.

Lockheed Martin is the world's largest defense contractor. The company gets 84% of its revenue from the U S Government. Over the last five years, the company’s revenue has increased each year. Over the last 52 weeks, the stock price is up by 4.02%, but over the last three years the stock price is down by 46.3%. The obvious reason for the decrease in the stock price is because investors are worried that deficit busting, budget cuts will reduce Lockheed Martin’s revenue. I believe that defense spending will remain strong and that the company’s revenue will not decrease. The company has $3.52 billion in cash and will be able to maintain its $3.00 dividend. With a dividend yield of 4.2%, and a price-to-earnings ratio of 9.05 I believe that this stock is cheap. I rate Lockheed Martin Corporation as a buy.

Transocean Ltd. (NYSE:RIG) Transocean has a market cap of $17.57 billion with a forward price-to-earnings ratio of 9.30. The stock has traded in a 52-week range of between $49.05 and $85.98. The current stock price is around $55. For the fiscal year second quarter ending on July 31, the company reported revenue of $2.81 billion, compared with revenue of $2.52 billion in the second quarter of 2010. Second quarter net income was $175 million compared with net income of $146 million in the second quarter of 2010. Net income for the fiscal year ending on January 31, 2011, was $613 million compared with net income of $441 million for the fiscal year ending in 2010.

One of Transocean’s closest competitors is Noble Corporation (NYSE:NE). Noble is trading at around $34 with a market cap of $8.55 billion and a price-to-earnings ratio of 29.41. Noble pays a dividend, which yields 1.5% versus Transocean, whose dividend yields 5.8%.

Transocean has been a profitable company for many years and increased its profit for the year ending on January 31, 2011, by 39%. On May 18, the company made its first dividend payment since 2002. The quarterly dividend was for $0.79. Over the last two years, this stock has been beaten up pretty badly. That is mainly because it had oil rigs in the Gulf of Mexico that had to be taken off line because of the Gulf of Mexico oil spill disaster. By the end of the year, the company will be able to bring the oil rigs back on line. It also appears that the company will not be held responsible for the majority of the damages that resulted from the oil spill. With these new developments and the stock's fat new dividend, the stock price should go up. I rate Transocean Ltd. a buy.

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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