5 Dividend Companies That Are Popular Among ETFs

Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I’m still on my quest to find the 10 best dividend-paying stocks according to my 7-criteria rating system. I’ve looked superficially at hundreds of companies, and done more in-depth analysis on dozens. I still have chosen only five companies for my Dividend Portfolio, so I continue to investigate at least ten or twenty every week.

I use a 7-criteria rating system, and assign each of the seven categories a point value from 1 (lowest) to 4 (highest). The perfect score would be a 28, but I have never yet seen a company that rates above a 20. So far the companies that I have chosen for my portfolio rate in the 18-20 point range. A company which scores 16-17 points stays on my list for further scrutiny, but anything tht scores 15 or lower is relegated to my rejection pile.

This week I am looking at the five dividend-paying companies that are popular among ETF managers. The ETFs are not dividend-specific ETFs, but all ETFs in general, so some of these companies may be included for reasons other than their dividend-paying potential. However, I am looking at their dividend potential plus their recent and future growth potential to see if they are a fit for my own Dividend Portfolio.

The first company, the one that is the most popular among all ETFs, is Intel (NASDAQ: INTC). Intel is currently owned by 102 ETFs, in the total amount of $4.8 billion.

Intel is currently trading at $22 per share and yields 4.1%. The company has been paying and raising dividends consistently for nine years, and its dividend growth rate (DGR) is 14.4%. Its PE is 9.6, and its twelve-month total return is a loss of 11.4%. The payout ratio is a sustainable 38%, so the dividend appears secure. The company is currently trading at 25% less than its 52-week high of $27.29, which was reached in May, and is down 12% from last year.

The 46 analysts who cover the company rate the stock a 2.7 (1.0 = Strong Buy, 5.0 = Sell), which is a pretty solid Hold rating. It has seven Strong Buys, nine Buys, 26 Holds, six Underperforms, and one Sell. They have set a one-year target price on the company of $23.05, which is a potential gain of 5%. Within the Motley Fool community, INTC is a four-star CAPS pick, with 9,230 Bulls and 614 Bears (94% positive sentiment).

Intel scores a 17 on my ratings system, which would be high enough for it to be more thoroughly considered for my Dividend Portfolio. However, at nine years its dividend history is too short (my cut-off is ten years, although I will keep an eye out for it next year!) and its negative twelve-month return also keeps it out of my portfolio.

The next company on the list, which is owned by 96 ETFs in the total amount of $9.2 billion, is Microsoft (NASDAQ: MSFT).

I recently took a look at Microsoft. The company is trading at $27 per share and yields 3.4%. It has been paying and raising dividends for seven years, and has a 5-year DGR of 15.3%. The PE is 14.5, and the twelve-month total return is slightly less than 1%. The payout ratio is a sustainable 45%, so the dividend appears secure. The company is currently trading at 19% less than its 52-week high of $32.95, which was reached in March, and is up only 4% from its low of last year.

The 40 analysts who cover the company rate the stock a 2.0 (1.0 = Strong Buy, 5.0 = Sell) with 15 Strong Buys, 12 Buys, and 13 Holds. They have set a one-year target price on the company of $34.44, which is a potential gain of 26%. The Motley Fool community is not as convinced, and rates MSFT only a three-star CAPS pick, with 13,784 Bulls and 2,036 Bears (87% positive sentiment).

Microsoft scores a 14 on my ratings system, which is not high enough for it to be more thoroughly considered for my Dividend Portfolio. Although its professional analyst sentiment and dividend-raising history is very good, the company scores low on my metrics of dividend-paying history and recent price performance

The third most popular company on the list, owned by 88 ETFs in the total amount of $8.1 billion, is Chevron (NYSE: CVX).

The company is currently trading at $112 per share and yields 3.2%. The company is a true Dividend All-Star and has been paying and raising dividends for 20 years, with a 5-year DGR of 9.3%. The PE is 9.1, and the twelve-month total return is 4.9%. The payout ratio is very reasonable at 29%. The company is currently trading at 5% less than its 52-week high.

The 23 analysts who cover the company rate the stock a 2.1 with five Strong Buys, 12 Buys, five Holds, and one Underperform. They have set a one-year target price on the company of $123.26, which is a potential gain of 12%. The Motley Fool community rates CVX a five-star CAPS pick, with 4,056 Bulls and 163 Bears (96% positive sentiment).

Chevron scores a 15 on my ratings system, which is just a bit too low to qualify for my Dividend Portfolio.

The next most popular company on the list, owned by 88 ETFs in the total amount of $5.9 billion, is AT&T (NYSE: T).

The company is currently trading at $34 per share and yields 5.3%. The company has been paying and raising dividends for eight years, with a 5-year DGR of 3.9%. T’s PE is a very high 45.3, and its twelve-month total return is 18.7%.

I have seen AT&T’s payout ratio generally listed as an unsustainable 233%, but that doesn’t seem correct to me, so I am calculating my own ratio. The past four quarters of earnings total $2.31 per share, and the forward dividend rate is $0.45 per quarter, or $1.80 for the year, assuming no raise in 2013. This makes the payout ratio a far more reasonable 78%. This is still on the high side, as far as I am concerned, but does not indicate to me that the company is in dire need of cutting its dividend.

The company is currently trading at 11% less than its 52-week high, which was hit in October.

The 39 analysts who cover the company rate the stock a 2.6 with six Strong Buys, six Buys, 25 Holds, and two Underperforms. They have set a one-year target price on the company of $36.52, which is a potential gain of 7%. The Motley Fool community rates T a three-star CAPS pick, with 5,373 Bulls and 451 Bears (92% positive sentiment).

AT&T scores a 10 on my ratings system, which is too low to qualify for my Dividend Portfolio. Its dividend history is too short, its DGR is too low, and its PE is too high.

The last company on the list, owned by 88 ETFs in the total amount of $5.7 billion, is Johnson & Johnson (NYSE: JNJ).

The company is currently trading at $72 per share and yields 3.4%. The company has been paying and raising dividends for an amazing 50 years, with a 5-year DGR of 8.2%. Its PE is a high 23.7, and its twelve-month total return is 15.7%.  The payout ratio is high at 79%. The company is currently trading at its 52-week high.

The 26 analysts who cover the company rate the stock a 2.2 with six Strong Buys, eight Buys, 11 Holds, and one Underperform. They have set a one-year target price on the company of $75.94, which is a potential gain of 5%. The Motley Fool community rates JNJ a five-star CAPS pick, with 13,546 Bulls and 494 Bears (96% positive sentiment).

Johnson & Johnson scores a 13 on my ratings system, which is too low to qualify for my Dividend Portfolio. Its PE and payout ratio are too high, and its future earnings number is too low.

In conclusion, while I acknowledge that many ETFs likely hold these companies in their portfolios for reasons other than their dividend-paying qualities, I know that dividends are becoming a more and more important part of an individual investor’s portfolio, and I reject all five of these companies for my own.

However, I do believe that Intel is worth keeping on my radar for the future. If the company can maintain its metrics over the next year, it may very well make it into my Dividend Portfolio as soon as it surpasses the ten-year history mark.


khern0203 has no position in any stocks mentioned. The Motley Fool recommends Chevron, Intel, and Johnson & Johnson. The Motley Fool owns shares of Intel, Johnson & Johnson, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus