Three Large Caps With Above Average Dividend Yields
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Screening is an important first step to identify attractive investment opportunities for all serious investors. By having different investment goals, investors could choose different screening criteria sets. As a value investor, I prefer any large capitalization companies which pay above average dividend yields and deliver a high return on equity for investors. By using the Motley Fool CAPS screen, I selected three main criteria for my search this time: (1) Market capitalization is greater than $10 billion (Large cap), (2) Current dividend yield is greater than 5%, and (3) return on equity is more than 20%. Here are the top 3 opportunities:
Southern Copper (NYSE: SCCO) is one of the largest copper producers in the world with producing and exploring operations in different countries such as Peru, Mexico, Argentina, Ecuador, and Chile. Although it has three main products, which are copper, molybdenum, and silver, two thirds of its revenue come from copper sales, and only 20% come from the other two products. SCCO's copper reserves can be considered the largest in the world, with 58.8 million tons at the end of 2011. Its shareholders must be quite happy to see its shares continuously rise from $28.16 to $37.97, a growth of nearly 35% within just 5 months. At the current price of $37.97, the total market capitalization is $32.21 billion. The dividend yield is 29%. Over the past twelve months, the return on equity is 52.4%. The market is valuing the company at 13.6x P/E and 7.1x P/B.
Energy Transfer Partners (NYSE: ETP) is the master limited partnership operating in the natural gas industry in the US. It operates in several segments including transportation, storage of natural gas, NGL, and retail propane through its different wholly-owned subsidiaries. The company is trading at $42.95, with the total market capitalization of $10.54 billion. This master limited partnership is a constant dividend payer. It pays a quarterly dividend of 89.375 cents per share. The current dividend yield is 8.3%. Over the past twelve months, the return on equity is 23%. At the current price, the market is valuing ETP at 9x P/E and 1.6x P/B. It is much lower than the industry’s average valuation, of 29.5x P/E and 2.8x P/B respectively.
CPFL Energy (NYSE: CPL) is one of the largest Brazilian electricity distributors. In 2011, it delivered more than 39.9 TWh to 7 million customers with the installed capacity of more than 2.6 GW. In addition, it is also involved in renewable energy by building four biomass generation projects, one hydropower plant and 25 wind farms. CPL expected to increase its installed capacity to 3.3 GW with these projects in the next three years. The company accounts for 13% market share in power distribution in Brazil, 16% of the commercialization market and 2% of total generation, mainly on renewable energy. CPL is trading at $23.19 per share; the total market capitalization is $11.16 billion. In 2012, it has already paid two dividends, of 81.77 cents and 64.36 cents in April and August respectively. The current dividend yield is 6.3%. Over the past 12 months, its return on equity is 21.9%. The market is valuing CPL at 15.9x P/E and 3.2x P/B.
My Foolish Take
Among the three, SCCO’s and ETP’s business rely much on commodity prices, particularly on copper for SCCO and natural gas for ETP. Even with high return on equity and high dividend yield, these two businesses are tied to the commodity price fluctuations. It is hard to accurately predict those movements; therefore it is hard to predict the intrinsic value of those two companies. I feel much more comfortable with CPL. As a leading player in Brazil power generation and distribution industry, with high return on equity and a good dividend yield, CPL could be a good stock for risk-adverse income investor in a long run.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.