Investing in high-dividend stocks is probably the best way to make serious profits for long-term investors. In spite of the great uncertainty in the market, there are still some stocks that are boosting their dividends, offering a great opportunity to return large profits. I have written many articles regarding the high-yielding stocks.
CNBC recently made a list of the highest yielders of the Dow, which I have written about here, here, here, and here. Along with that, CNBC compiled another list of the stocks that are increasing dividends the most, which is a nice indicator to determine a healthy stock. I have examined all of these stocks from a fundamental perspective, and added my opinion about them. I have applied my O-Metrix Grading System where possible, as well. Here is a fundamental analysis of the first seven stocks from CNBC’s list ‘Biggest Dividend Increases’ (Data obtained from Finviz/Morningstar, and is current as of October 6. You can download O-Metrix calculator, here.):
Lorillard (LO): Lorillard has participated in the Barclays Capital Back-to-School Consumer Conference on September 8. Lorillard has a P/E ratio of 15.7, and a forward P/E ratio of 13.4, as of October 6. Analysts expect the company to have an annual EPS growth of 12.0% in the next five years. With a profit margin of 17.1%, and a dividend of 4.52%, Lorillard is a charming stock for dividend lovers.
Target price implies a 1.6% increase potential, whereas it is trading only 0.07% lower than its 52-week high. Institutions hold 96.80% of the shares, and O-Metrix score is 5.67. Lorillard returned 45.7% in a year. Yields are impressive, while cash flow is doing all right. Debt-to-equity ratio is 2.0, way below the industry average of 5.6. SMA50 and SMA200 are 7.03% and 19.77%, respectively. Operating margin is 28.8%. ROA is 38.06%, and analysts give a 1.5 rating for the company (1=Buy, 3=Sell). My FED+ Fair Value estimate is $96 for Lorillard, which means that the stock is trading way above its fair value. I would wait for a pullback.
Bristol-Myers Squibb (BMY): Bristol-Myers will declare its Q3 results on October 27. It shows a trailing P/E ratio of 16.7, and a forward P/E ratio of 16.0, as of the October 6 close. Analysts estimate a 4.3% annual EPS growth for the next five years. It pays an attractive dividend of 4.07%, while the profit margin (16.3%) is slightly better than the industry average of 15.3%.
The stock is trading 0.92% lower than its 52-week high, whereas it has an O-Metrix score of 2.55. Target price is $23.15, indicating an about 1.0% downside movement potential. Institutions own 68.53% of the stock, and it has a Beta value of 0.56. SMA50 and SMA200 are 10.69% and 18.40%, respectively. Bristol-Myers returned 18.8% in a year, while yields are OK. The debt-to-assets ratio is decreasing since 2006. Cash flow is doing great, whereas operating margin is 28.7%. Gross margin is 72.9%, and ROE is 20.74%. Bristol-Myers can return nice profits in the long run, but investors should wait for a pullback right now.
Eli Lilly & Co. (LLY): The Food& Drug Administration has approved Eli Lilly’s Cialis drug recently. The Indiana-based Eli Lilly was trading at a P/E ratio of 8.7, and a forward P/E ratio of 10.0, as of the October 6 close. Five-year annual EPS growth forecast is -6.5%. Profit margin (19.7%) is above the industry average of 16.3%, while it pays a superb dividend of 5.26%.
Target price indicates a 0.5% downside potential, whereas the stock is currently trading 5.06% lower than its 52-week high. Earnings increased by 16.32% this year. Eli Lilly returned 0.4% in a year, and it has a Beta value of 0.76. Yields seem all right. The debt-to-assets ratio is going down since 2008, whereas Morningstar gives a four-star rating to the stock. Debt-to-equity ratio is 0.4, better than the industry average of 0.8. Gross margin and operating margin are 80.7% and 25.1%, respectively. While ROE is 38.55%, ROI is 24.78%. I believe the 5-year EPS growth estimate is too harsh for Eli Lilly, as it is among the top dividend stocks for the ultimate retirement portfolio.
Pfizer (PFE): Pfizer signed a licensing deal with Puma Biotechnology recently. The drug manufacturer has a P/E ratio of 17.0, and a forward P/E ratio of 8.0, as of October 6. Estimated annualized EPS growth for the next five years is 3.3%. Although profit margin (12.7%) is slightly below the industry average of 15.3%, it offers a nifty dividend of 4.39%.
The stock is trading 14.07% lower than its 52-week high, and it has an O-Metrix score of 3.07. Target price implies a 28.2% upside potential, whereas it returned 4.8% in the last twelve months. The debt-to-assets ratio is going down for the last five quarters. Pfizer has a five-star rating from Morningstar, and a Beta value of 0.70. Gross margin and operating margin are 76.5% and 20.8%, respectively. Pfizer will be one of the best out-performers in the long run, and it is a good idea to buy some at this level.
Lockheed Martin (LMT): A missile defense system of Lockheed passed the test on October 5. The aerospace-defense contractor, as of the October 6 close, shows a trailing P/E ratio of 9.6, and a forward P/E ratio of 8.4. Analysts expect the company to have a 9.8% annual EPS growth in the next five years. It offers a 5.47% dividend, while the profit margin is 6.1%.
Lockheed returned 3.5% in a year, and it has an O-Metrix score of 8.48. Target price is $85.65, implying a 17.1% upside movement potential. The stock is currently trading 10.16% lower than its 52-week high, whereas insider transactions have increased by 28.78% within the last six months. Institutions own 90.89% of the shares. Yields are awesome, and debts are far from being a threat. ROE and ROI are 80.92% and 33.28%, respectively. Beta value is 0.95, while PEG value is 0.9. This is an excellent stock to stick with.
ConAgra Foods (CAG): ConAgra has increased its quarterly dividend from $0.23 to $0.24. The Nebraska-based ConAgra was trading at a P/E ratio of 13.9, and a forward P/E ratio of 12.8, as of October 6. Analysts estimate a 7.5% annual EPS growth for the next five years. Profit margin (6.0%) is slightly lower than the industry average of 6.7%, and it offers a 3.84% dividend.
Target price implies a 6.5% upside potential, while the stock is currently trading 5.30% lower than its 52-week high. O-Metrix score is 4.24, and ConAgra returned 13.9% in a year. Yields seem all right, whereas debt-to assets ratio is going down for the last three years. Debt-to-equity ratio is 0.6, far better than the industry average of 1.3. Beta value is 0.71, and earnings increased by 14.44% this year. Institutions hold 69.84% of the shares. SMA50 and SMA200 are 3.84% and 5.00%, respectively. ConAgra has had strong recovery since its dip in December 2008, so consider adding this stock to your portfolio.
Reynolds American (RAI): Reynolds American has been selected to Dow Jones Sustainability North America Index for the fourth time. It shows a trailing P/E ratio of 16.8, and a forward P/E ratio of 13.6, as of the October 6 close. Estimated annual EPS growth is 10.0% for the next five years. With a profit margin of 15.7%, and a dividend of 5.49%, Reynolds American is a charming stock for dividend lovers.
The company returned 30.5% in a year, whereas it has an O-Metrix score of 4.79. Yields are great, and debts are going down since 2008. Beta value is 0.64. Insider transactions for the last six months have increased by 34.65%, while earnings increased by 37.87% this year. SMA20, SMA50, and SMA200 are 3.92%, 7.81% and 11.27%, respectively. Debt-to-equity ratio is 0.5, which crushes the industry average of 5.6. Operating margin is 27.4%, whereas ROE is 20.56%. Reynolds is an excellent pick to go long, as it has a great momentum since March 2009.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.