Dividend Alert: These High-Yielders May Double Their Payout
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We have identified ten stocks that have high dividend yields – those greater than 3% – that could afford to pay double their current dividend, i.e. those having less than a 40% payout ratio for the most recent quarter. Additionally, each of these companies also generate at least $4 of cash flow per share.
The first companies on this list, Chevron Corporation (NYSE: CVX) and ConocoPhillips (NYSE: COP), are in the profitable oil and gas sector. Chevron pays a dividend yield of 3.1% and Conoco 4.6%, and both companies only pay about 30% of their earnings out as dividends. ConocoPhillips trades below its peers on a P/E basis at 6.7x, while Chevron trades at 8.7x, with the likes of Exxon and BP trading at 9.5x and 8.0x, respectively. While ConocoPhillips trades at a richer forward P/E at 10, versus Chevron of 9x, Conoco recently spun off its downstream operations, which may prove to accelerate the company over the next couple years.
Cliff Asness of AQR Capital Management and Bill Mason of Legg Mason Capital Management were two of the top managers in both Chevron and ConocoPhillips as of the end of the second quarter. Jim Simons of Renaissance Technologies increased his Chevron stake by 50% during 2Q, while ConocoPhillips continues to be a favorite of Warren Buffett.
Two other solid dividend stocks we found are computer companies Dell Inc. (NASDAQ: DELL) and Intel Corporation (NASDAQ: INTC), with respective dividend yields of 3.1% and 3.9%. Dell only pays out 19% of its earnings as dividends, while Intel pays 38%. Of the firms we track, Mason Hawkins of Southeastern Asset Management is the firm with the largest share ownership in Dell, holding 132.6 million shares. Southeastern’s stake in Dell represents 7% of their 13F portfolio and is their second largest 13F holding (see all of Mason’s holdings here).
Ken Fisher of Fisher Asset Management is one of the top firms in Intel, while Jim Simons increased his ownership by 76% in 2Q. Both of the companies have seen various insider sales during the first half of the year (Intel sales and Dell sales), but each is expected to increase next year’s EPS by around 3%. Intel is also one of the cheapest dividend stocks around.
The other stock that could theoretically double up on its dividend payment is Walgreen Company (NYSE: WAG). Although Walgreen has a tough road to regain customers from CVS that it lost when the company walked away from Express Scripts earlier this year, it is still one of the top ten service stocks among hedge funds. Walgreen’s current dividend yield is 3.1% and the company pays 37% of its earnings as dividends. Compared to its main competitor, CVS, Walgreen trades at an attractive valuation. Walgreen trades at a P/E of 12 and a P/S of 0.4, versus CVS’s P/E of 17 and P/S of 0.6. Also CVS only pays a dividend that yields 1.4%.
Big name Michael Messner of Seminole Capital increased his 1Q stake in Walgreen by 813% during the second quarter, and now owns 1.9 million shares. Messner also has ConocoPhillips and Intel as other top holdings according to his firm’s 2Q 13F.
Outlined below are the remaining five companies that we found who are high dividend payers with room to increase their dividend. The list includes a couple solid aerospace and defense companies and a tech company that supports the power management industry.
For the high-dividend stocks listed above, Warren Buffett is an owner of General Dynamics, while Jim Simons and Brookside Capital are bullish on Eaton. Simons increased his position in the power management company by 205% last quarter, while Brookside initiated a new position during this time. Meanwhile, CME Group is still one of Jim Simons’s top picks. AQR Capital Management, owner of both Chevron and ConocoPhillips, is in the defense company Northrop.
For a complete look at the hedge fund industry’s sentiment on these stocks, continue reading here.
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This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Chevron and Intel. 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.