5 Dividend Income Stocks For The Long Term

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Includes: LOW, MCD, MO, MSFT, WBA
by: Vatalyst

As the economy continues to struggle, many investors are beginning to look to stocks that issue a stable dividend. Below are five stocks from the S&P 500 that are most likely to do just that over the next decade. Specifically, these names have never reduced their dividends in the past. Second, from a valuation standpoint, these names are selling at price-to-earnings ratios below their industry average. Third, these stocks all have betas that are below their industry average betas, which provides an indication of price stability. Here is my analysis of the names that made the cut:

Microsoft Corp (NASDAQ:MSFT) – Is the world’s leading software company in your portfolio? With all the hype surrounding Apple Inc. (NASDAQ:AAPL), many investors have forgotten about Microsoft. Because of that, the stock could very well be undervalued. The company currently has earnings per share of $2.75, giving it a price to earnings ratio of 9.7. This is more than half the industry’s ratio at 20.7 and under half the S&P 500’s ratio of 17.9. The stock also has a fairly nice dividend with a yield of about 3% which turns into $0.80 annually. Financially speaking, MSFT is strong as well. The company has a quick ratio of 2.60 and a debt to equity ratio of 0.20. The beta of 0.99 also makes this stock one that is no more volatile than the market itself. Although MSFT does trail its competitors AAPL and Google Inc. (NASDAQ:GOOG), in price to earnings ratio, neither of these companies really deal with MSFT’s core business, software. With no company to really compete directly with MSFT in the core business, and the company’s recent purchase of Skype, not only will MSFT be a safe company, but should also be a safe stock to own.

Altria Group Inc. (NYSE:MO) – Whether or not consumers have heard of Altria Group Inc., they have definitely heard of its tobacco products, such as Marlboro, Parliament, and other brands. For those looking for a stock issuing a dividend that is not volatile, this may be an investor’s dream. The company has a beta of 0.43, making it extremely stable. In addition, the annual dividend is $1.64, giving it a yield of 6.00%. MO’s current earnings per share is $1.65, giving it a price to earnings ratio of 16.6, which is right in line with the industry average of 16.3.

One area of concern is that the company is highly leveraged with debt, as MO has a total debt to equity ratio of 2.95. However, this does not mean the company isn’t profitable. In the 3rd quarter, MO indicated that net income rose nearly 4 percent. Although competitors Lorillard, Inc. (NYSE:LO) and Reynolds American Inc. (NYSE:RAI) have higher earnings per share than MO at $7.31 and $2.30, MO is still the market leader, and has a total net income almost three times either company. Added that MO is planning on buying back shares, the earnings per share will only continue to rise.

Lowe’s Companies, Inc. (NYSE:LOW) – Whenever a recession hits, retail stores are always hit hard. LOW is no exception. LOW announced recently that is planning on closing 20 of its stores. While this may help short-term profitability, it may hurt long-term growth. Overall, the company’s stock still appears to be a good one to hold. LOW's earnings per share is $1.48 with a price to earnings ratio of 14.6, which is slightly lower than the home improvement industry at 15.7. The price to book value is lower at 1.63 than the industry at 2.61. The annual dividend of LOW is $0.56, or a yield of 2.60%. Analysts do not see the stock price going much higher, with a mean target price of $23.50. However, with the company having no plans to cut the dividend, once the economy recovers, this stock could be a good turnaround. It still has a ways to go before catching up with industry leader Home Depot, Inc. (NYSE:HD), but LOW is still a stock that could help your portfolio make money.

McDonald’s Corp (NYSE:MCD) – As the economy continues to struggle, many consumers will continue to find value wherever they can. This includes low-cost, fast food meals. MCD has very profitable numbers with earnings per share of $5.10. This gives the company a price to earnings ratio of 18.0. Although this is higher than the S&P 500 at 17.9, it is still lower than the restaurant industry, which is at 23.6. The company has a very safe dividend yield of 3.10, which is $2.80 annually. MCD is also extremely non-volatile with a beta of 0.36. With Burger King Holdings, Inc. privately held, Yum! Brands, Inc (NYSE:YUM) is MCD’s next direct competitor that is publicly traded. MCD is clearly the market leader, as the numbers are nearly double in all categories compared to YUM from revenue, operating margin, to earnings per share (YUM’s earnings are $2.55). With these numbers, and a name everybody knows and loves, MCD isn’t going anywhere anytime soon, and looks like a safe investment.

Walgreen Company (WAG) – As one of the biggest retailers in the United States, many people venture to WAG for their everyday needs. People may also visit the stock to meet their investing needs. The stock is currently trading around $33 to $34 a share, closer to its 52-week low of $31.60 than its high of $47.11. However, the stock does still appear to be an attractive one. The earnings per share are $2.94, giving it a price to earnings ratio of 11.3. This is slightly under the industry average of 13.2 and under the S&P 500 at 17.9. WAG does issue a dividend of $0.90 per share annually, which is a dividend yield of 2.70%. WAG’s closest competitor is CVS Caremark Corporation (NYSE:CVS). Comparing the two, CVS has the higher market capitalization; however, WAG has higher earnings per share and lower price to earnings than CVS, which are $2.46 and 15.02, respectively. Financially speaking, WAG is doing well, with a current ratio of 1.50 and an extremely low debt to equity ratio of 0.16.

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