5 Dividend Stocks Paying Cold, Hard Cash
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies that are generating positive cash flow and sharing dividends with shareholders should be at the forefront of every investor's mind. Companies demonstrate profit on their books, which fuels the market price. Although profits can be generated from financial engineering, cash flow from operations or dividends to shareholders cannot be manipulated. Good quality dividends are a proxy for measuring a company's health, and dividend growth augurs well for a company’s future. In this article, I examine the fundamentals of five stocks on my radar which can pay you cold, hard cash. The analysis includes Flowers Foods (FLO), General Dynamics Corporation (GD), Northrop Grumman Corporation (NOC), McDonald's Corporation (MCD) and Automatic Data Processing Inc. (ADP).
Flowers Foods (NYSE: FLO) – FLO is a producer and marketer of packaged bakery foods in the United States. It is trading at trailing twelve month price to earnings ratio of 19.89, price to book ratio of 3.28 and price to earnings growth ratio of 3.34. It has decent return on equity at 16.58% and operating margins is at 7.58%. Although the company’s valuations appear high, the dividend history is impressive. Although the dividend yield of FLO is decent, at 3.10%, and it has a staggering 25% five year dividend growth rate, similar growth is expected in future. FLO has an excellent dividend payout ratio of 53%. Since FLO is a small cap, care and caution needs to be exercised before entering into a long term position. The company should see some seasonal benefits this quarter, between Hanukkah, Christmas and Valentine's Day holidays. Additionally, the fading of the Atkins diet craze will benefit carbohydrate-focused operators like Flowers Foods.
General Dynamics (NYSE: GD) - GD is a defense conglomerate in the United States. It is fifth largest defense contractor in the world. GD is currently trading at trailing twelve month price to earnings ratio of 10.06, an excellent price to book ratio of 1.85 and a good price to earnings growth ratio of 1.32. It has good returns on equity at 19.69% and operating margins are at 12.3%. GD is nicely valued at current price. GD’s dividend history is impressive; it is continuously paying dividend for more than 30 years and has been continuously increasing dividends for 20 years. The dividend yield of GD is low, at 2.70%, compared to its competitors but its lengthy dividend history provides enough comfort for the stability of the company. The annual dividend payment has increased on average 12% per year for last ten years and dividend payout ratio has been maintained in range of 20-25%. GD recently agreed to acquire Force Protection in a tender offer for $352 million or $5.52 a share to help complement its extensive product line of combat vehicles.
Northrop Grumman (NYSE: NOC) - NOC is the fourth largest defense contractor in the world. It is currently trading at a good trailing twelve month price to earnings ratio of 8.91, an excellent price to book ratio of 1.31 and good price to earnings growth ratio of 1.07. It has return on equity at 15.72% and operating margins are at 10.3%. NOC is undervalued at the current price. The market seems to be discounting NOC on account of a fear of recession in US on the backdrop of EU crisis and also on potential US defense budget cuts. Considering the rich pipeline of orders these two fears can be taken care of near future. NOC has a good dividend history with a current dividend yield of 3.4% and a good payout ratio of 29%.
McDonald's (NYSE: MCD) – MCD is the world's largest chain of hamburger fast food restaurants. MCD has increased annual dividends for 25 consecutive years making it one of the top dividend payers in the market. MCD is capitalized at $103.4 billion. It is currently trading at trailing twelve month price to earnings ratio of 19.82, price to book ratio of 7.7 and good price to earnings growth ratio of 1.92. It has impressive return on equity at 39.80% and outstanding operating margins are at 30.49%. MCD has good dividend history with current dividend yield of 2.8% and good payout ratio of 48%. MCD continue to increase its roots in emerging markets like India and China and it still have more opportunities available. It has repeatedly demonstrated how to modify services and products based on the culture you operate in. This exceptional ability of MCD gives me enough confidence that it will continue to grow and payout dividends for a long time to come. There are very few other companies like MCD that gives you growth and dividend payout the way they do it. Recently, MCD extended its Olympic sponsorship to 2020 to boost its brand in emerging markets. I think this is a great move.
Automatic Data Processing Inc. (NASDAQ: ADP) - ADP is a business outsourcing solutions provider. It is trading at trailing twelve month price to earnings ratio of 21.69, price to book ratio of 4.46 and price to earnings growth ratio of 1.97. It has good return on equity at 21.58% and operating margins is at 18.58%. Fear of a weak economy ahead and low employment levels have impacted ADP. Large scale operations, big customers and brand value are positives for ADP. Although the company’s valuations appear high, dividend history is impressive. The dividend yield of ADP is low at 2.90% but the dividend grew by on average at 13.75% for past five years. ADP has excellent dividend payout ratio of 56% and has been consistently paying dividend for past 36 years. ADP is one of the few AAA companies left in the world. With negligible debt ADP’s balance sheet is very strong which gives more comfort to the large dividend payouts.
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