In most of my articles, I try to emphasize the danger of current unstable environment. Naturally, I tend to recommend heading for stable plays with strong field performance & fat dividends. As far as I can see, investors over the globe have the same opinion with me, which led these companies to become heavily overbought. While these companies pay great dividends, they seem to be relatively expensive compared to the market. I have found four companies that offer healthy and fat dividends with trustworthy field performance, yet are highly overbought. I have analyzed all of them from a fundamental perspective, and added my O-Metrix Grading System, where possible. Here is an analysis of four dividend stocks to buy after a pullback. (Data from Finviz / Morningstar, and current as of December 29. You can download you O-Metrix calculator, here.):
Altria Group (MO)
Altria will pay a quarterly dividend of $0.41 per common share, payable on January 10, 2012. The company is trading at a P/E ratio of 17.7, and a forward P/E ratio of 13.6. Five-year annualized EPS growth forecast is 6.5%. With a profit margin of 21.2%, and a dividend of 5.52%, Altria is an attractive play for dividend lovers.
The company is doing quite well since the downturn in the Lehman disaster. All technical charts look convincing. Although governments keep pushing cigarette prices forward, quitting smoking is one hell of a fight. I don't believe governments will easily keep increasing prices beyond this level, and they will have to stop due to massive opposition by smokers. Altria is a great bet with its grand profits and revenue, plus the dividend is safe. Altria has a lower-than average O-Metrix score of 3.84. However, the stock looks quite expensive after returning near 30% in 2011.
Plains All American Pipeline (PAA)
Plains All American has announced that it has entered into a new credit facility for providing additional liquidity, worth $1.2 billion. It shows a trailing P/E ratio of 17.30, and a forward P/E ratio of 15.6. Analysts estimate a 5.0% annual EPS growth for the next five years. Although profit margin (1.9%) is lower than the industry average of 4.3%, dividend yield (5.51%) is quite fat.
Plains All American has a very good dividend historical background. O-Metrix score is 3.71. With a Beta value of 0.49, the company is among the least volatile stocks in its industry. Assets and cash flow are doing quite good. Since September 2010, earnings-per share [ttm] is doing awesome. The company has recently crossed the large-cap border, so it is quite newbie in this arena. Plains All American Pipeline seems to have a great momentum since January 2009. The stock is extremely overbought currently with a Relative Strength Index of 78.88%. I suggest waiting for a pull-back to buy this stock.
Southern Company (SO)
Southern Company is among my favorite plays, which has raised its dividend for nine consecutive years. It is trading at a P/E ratio of 18.5, and a forward P/E ratio of 17.3. Analysts expect the company to have a 5.1% annual EPS growth in the next five years. With a profit margin of 11.8%, and a dividend of 4.06%, Southern Company is an enjoyable pick for dividend lovers.
Southern Company has entered into overbought territory this Tuesday. The company is the second least volatile among its peers with a Beta value of 0.30. Dividends, revenue, and cash flow look good. The management team is excellent at their job. Dividends are raising, cash flow is good, field performance is admirable. Beta value is low. What other criteria do you want to hear about? Add it to your retirement portfolio after a pullback below $40. Based on these numbers, Southern Company has an O-Metrix score of 2.55.
Verizon customers are reporting network connection problems once again, after having two other outages already this month. The company has a P/E ratio of 16.1, and a lower forward P/E ratio of 15.7. Estimated annual EPS growth for the next five years is 6.3%. It pays a 5.00% dividend, while the profit margin (6.5%) is lower than the industry average of 8.6%.
Verizon is waiting for approval to buy spectrum licenses from Cox Communications, and going all-in to acquire wireless spectrum from Spectrum Co. These acquisitions will surely gain the upper hand for Verizon against its rivals. Dividends have an adorable history, along with cash flow and revenue. Earnings-per share [ttm] has been doing remarkably good for more than one year. Verizon is a profitable play, but Telefonica (TEF) offers a better value, as I have mentioned before. Verizon has a D-Grade O-Metrix score of 3.55. I think investors over-reacted to AT&T's (T) withdrawal of T-Mobile deal, pushing Verizon into overbought territory. I recommend waiting for a pullback.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.