'Buy and hold' dividend stocks are the long-term investor's security blanket. These are companies that have gradually increasing dividends, which push the stock price ever higher and make for some fantastic long-term gains. A good 'buy and hold' candidate is one that has a good record of paying dividends, is financially positioned to be able to continue to pay the current dividends, and has the management or market conditions on hand to make a steady growth push well into the future. I ran these guidelines over five dividend paying companies to see if they are great buy and hold candidates. Here is what I found:
Ace Limited (ACE) has a recent price near $73, which is near the top of its $56.90-$74.50 52-week trading range. It has a market capitalization of $24 billion, an earnings per share of $4.64 for the trailing twelve months, and pays an annualized dividend of $1.88 for a 2.58% yield. The Zurich-based insurer has been showing steadily increasing dividends, which jumped up by 34% in January 2012. It has a conservative 22% payout ratio, showing it can easily afford the current dividends while its quick ratio is a miniscule 0.42%. Ace can easily keep the dividends coming while its insurance operations look set to improve over the next few years. I consider this stock an excellent buy and hold candidate.
Going from insurance to communications, Comcast (CMCSA) is a $61 billion market capitalized company trading near $29. It has a 52-week trading range of $19.19-$29.05, an earnings per share of $1.51 for the trailing twelve months and an annualized dividend of $0.45 for the lowest yield of this screen of 1.57%, based on the trailing twelve month figures. It also has a conservative payout ratio at 36%. Revenues are steadily rising, in part because of Comcast's purchase of NBC, but most interestingly, free cash flow increased 30% year over year. The expected synergies of the NBC and Comcast structures have come slower than Wall Street hoped, but revenues should continue to rise as the company finds ways to allow the TV and cable elements of its structure feed off each other. Comcast is another excellent buy and hold situation.
Oil company ConocoPhillips (COP)) is an interesting dividend play with extras. It has a current market capitalization of $97 billion and a share price near $73.36, which places it in the top third of its $58.65-$81.80 52-week trading range. The earnings per share are $2.64, for a nice dividend yield of 3.63%, with another nice payout ratio of 29%. The company announced in 2011 the decision to split the company into two separate corporations. ConocoPhillips will remain as the oil producer, while Phillips 66 will become the oil refiner and downstream retailer. I expect the split will increase overall shareholder value, while current shareholders should receive shares of two dividend paying stocks with positive futures. That said, I cannot put this into the "Buy and Forget" category, since the situation should be monitored to make sure the divestiture goes off well. This is more of a buy and watch situation.
Dow Chemical Company (DOW) has a $41 billion market capitalization, a recent share price around $35, and has been trading between $20.61 and $42.23 for the recent 52 weeks. Earnings per share are reported as $2.05 for a price to earnings ratio of 17.07. The $1 annualized dividend offers a 2.90% yield by a payout ratio of 44% - higher than the previous three of this screen, but still acceptable. Dow is a chemical market leader with $60 billion in revenue and $2.8 billion in net income, and has paid a consistent 3.3% yield for what seems like forever. I expect Dow to continue its upward rise, but I am a bit concerned about the current yield. I would prefer waiting for the stock to retreat a bit to the $30 range before buying.
Our final company is a different fish, REIT Annaly Capital Management Inc (NLY) which has a recent share price around $17, in the middle of its 52-week trading range of $14.05-$18.79. The market capitalization is at $16 billion. It has a price earnings ratio of an attractive 5.4%. REITs are required to payout at least 80% of revenues as dividends to maintain their favorable tax status. They often go over 90% on their payout ratio and sometimes over 100% for short periods. However, for 4th Quarter 2011, the company reported a declining interest rate spread for its most recent quarter, moving 2.08% to 1.71% in the fourth quarter, while revenues took a hit. The payout currently stands at an atmospheric 650%. Quite simply, the company cannot maintain its current dividend payout, so it must either find a way to quickly ramp up revenues or to cut its dividend. I do feel that in the current low interest environment Annaly will thrive. There is enough worry here that an investor has to watch this stock closely. This is not a "Buy and Hold "stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.