Summer Swoon: 3 Dividend Stocks To Pick Up

Includes: CF, MCD, PM, TNH
by: Tradevestor

So, the summer pullback is officially here. The Dow Jones Industrial Average, for example, has fallen from 13,200 to about 12,500 since the beginning of May. As long term investors know, such pullbacks present buying opportunities in good stocks which remain sound fundamentally but get knocked down due to fear in the overall market. This article presents three such dividend paying stocks that we believe will be good additions to most portfolios.

Terra Nitrogen Company (NYSE:TNH): TNH was one of the market leaders in the first quarter of 2012. The stock reached a high of $298.5 on April 16th before falling an astonishing 40% to close at $182.06 on May 17th. What makes this stock particularly attractive is its 8% yield (call it dividend or distribution). The valuations are very reasonable, with a PE of 11. TNH's operating margin is very impressive at 64%, which is miles ahead of industry peers like CF Industries (NYSE:CF)

Buy Point: The way the market is going right now, we should easily see a drop to $160 in TNH. Remember this is a wild stock which has $10 swings on a typical day. The $160 entry point would give investors a 10% yield, which is a good hedge for the wild stock price ride. However, bear in mind, this is not your classic dividend stock but rather a classic cyclical growth stock with wild up and down rides.

Philip Morris (NYSE:PM): Talking about classic dividend stocks, Philip Morris is another stock which we believe will present good buying opportunities for the ones waiting on the sidelines. The stock's heavy exposure to Europe could weaken it further, given the mess Europe is right now. PM reached a high of $91.05 on May 1, before falling about 7% to close on May 17th at $84.2.

Buy Point: A great buy point would be the 4% yield point of $77 and below that has proven to be successful for many here on Seeking Alpha (Hello Mr. Norman Tweed). However, unlike TNH, PM is reasonably stable in its PPS and given its dividend growth potential, it won't be a bad idea to take advantage of this 7% fall and start scaling in slowly right now. Remember, there is an almost sure shot dividend increase coming up in September 2012. An entry at the low to mid $80s level will present a 4% yield with the upcoming dividend increase.

McDonald's Corporation (NYSE:MCD): Unlike TNH and PM, MCD's trouble started much ahead of the summer. Weak same store sales growth in February and April pulled back the stock from its January 20th high of $102.22 to its May 17th closing price of $89.62, a fall of about 12%. In between those two reports mentioned above, MCD reported a reasonable first quarter, which was boosted by international sales.

Buy Point: As in the case of PM, we believe the current pullback is good enough to initiate or add slightly to existing positions in MCD. If however, the stock pulls back further to the low to mid $80s range, it could very well be time to go all in. One reason (in addition to the dividends) why you may not want to wait till MCD drops even further is, when fear increases, most investors search for safe high yielding stocks and you want to be ahead of the crowd. This is exactly what happened in 2011 when fear reigned. Guess which index performed the best ? It was the "safe and boring" Dow 30 stocks.

Disclosure: I am long MCD, PM.