Large-Cap Dividend Stocks With Significant Institutional Ownership On Sale

by: Brian Gorban

There are many indicators I use when analyzing a stock. One is recent insider activity; another is unusual option activity. A third indicator I look for: relatively cheap dividend stocks -- and with the market moving even lower, it has revealed some great stocks worth analyzing.

Automatic Data Processing (NASDAQ:ADP) dates back to 1949 and has since become one of the world's largest business outsourcing solutions. It does a lot of the back-office work people don't notice (such as payroll processing, tax and benefits administration solutions, and a wide range of other human resource services) and its great competitive moat is that once it has a company onboard, the switching costs are huge and so it continues to reap the rewards. The company balance sheet looks very nice as it sits on approximately $1.4 billion in cash with virtually no debt, generated over $1.5B in FCF this past year, and has a payout ratio under 60%, which shows me its 3% dividend yield is not only safe, but looks to continue to grow as management has done so very well since 1974. I think the company is a buy here and as of last quarter, 74.7% of its shares were owned by institutions.

Exxon Mobil (NYSE:XOM) dates back to 1870 and since that time has become the world's most profitable company as its annual profit is approximately $40 billion. High oil prices have definitely helped its cause, but so has an excellent management team. The current yield is a respectable 2.5% as the stock has fallen almost 20% the last two months with economic worries causing oil prices to fall. Either way, this is a chance to get quite possibly the best-run energy company at a discount as it's trading at $74/share translating to a 9.8x P/E and .9x P/S. It's big competitors Chevron (NYSE:CVX) and BP look just as enticing as well. Chevron sports a 3.3% yield and is trading at about 8x P/E and .8x P/S , while BP, still recovering politically from the huge oil spill, yields 4.6% and trades under a 6x P/E and .3x P/S. I think a basket of these three would work nicely for the long-term dividend investor at these price levels as they all three have payout ratios under 30%, which means not only a safe dividend, but very likely raises coming in the near future. As on last quarter, all three of these companies had at least 49% of their shares owned by institutions.

Johnson & Johnson (NYSE:JNJ) dates back to 1886 and has simply become a behemoth in the healthcare field since that time churning out almost $65 billion in trailing twelve month revenue. The company has a very nice 3.7% yield, and it's trading under 15x P/E while churning approximately $14B in FCF this past year. Moreover, it has a very healthy $11 billion in net cash and a payout ratio of almost 50%, which again has to give you confidence that not only is the dividend safe, but there's good reason to believe that it will continue to grow as the company has done for the last 49 consecutive years. As of last quarter, 64.2% of shares were owned by institutions. This is a buy here.

Microsoft (NASDAQ:MSFT) was at one point the world's most valuable company, but since that time over the last decade has pretty much just had a stagnant share price. However, the company still performed relatively well and has churned out big profits during that time bringing it to compelling valuation with a 9.6x P/E, 3.1% dividend yield, over $38 billion in net cash, and a payout ratio below 25%, leading me to believe that the respectable dividend increases since the company starting paying dividends in 2003 will continue. Moreover, another fellow technology giant, Intel (NASDAQ:INTC), looks enticing as well with its almost 3.8% dividend yield, 20x P/E, over $9 billion in net cash, and a very healthy payout ratio right near 30%. One should reasonably expect this well-run company to continue its dividend raises since it started paying one in 1995 as well. Both of these companies had institutional ownership of well over 60% as of last quarter.

Sources: Yahoo, SEC filings, company websites

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC, ADP, BP, JNJ over the next 72 hours.