5 Dividend Companies Favored by Top Investors
Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I've been examining dividend stocks for nearly a year now, selecting what I feel are the absolute best for my own dividend portfolio. I’m actually getting close to completing my portfolio (I’ve chosen eight stocks out of ten), but I’m running into a problem. There aren’t enough companies that meet my criteria.
While I ponder what to do about the last two selections for my portfolio, I’m going to check out what the gurus, the successful investors, are buying.
I found five companies with juicy dividends that have been purchased at a far greater rate this last quarter than they have been sold. My criteria are that the company has to be owned by at least 10 experts and that the ratio of experts buying to selling in the last quarter has to be 2:1.
These are some of the best investors in the world; shouldn’t you be considering the companies that they are buying, too?
The first company on the list is Merck (NYSE: MRK). It is currently selling at approximately $42 and yields 4.2%. It is trading 12% off its 52-week high and has a one-year analyst target price of $48.43, for a 15% potential gain. The 13 analysts who cover it rank it a 2.3 (1.0 = Strong Buy, 5.0 = Sell) with four Strong Buys, eight Buys, seven Holds, and one Underperform.
In terms of the experts tracked by GuruFocus, 27 have positions in the company, with 15 buying in the quarter ended Dec. 31 and seven selling. Significant positions (over 1 million shares) are held by Ken Fisher (Fisher Asset Management), Edward Owens (Vanguard Healthcare Fund), Brian Rogers (T Rowe Price Equity Income Fund), Irving Kahn (Kahn Brothers), Dodge & Cox, NWQ Managers, Charles Brandes (Brandes Investments), and Hotchkis & Wiley.
In terms of my own dividend-scoring system, Merck receives a 10 on my 7-criteria scale, out of a possible perfect score of 28. As readers of my Building My Dividend Portfolio series will know, I am only accepting companies that score in the range of 18-20 into my portfolio. Companies that score 15–17 remain on the list for further investigation, and companies that score lower than 15 are usually not examined again.
The next company on the list is British Petroleum (NYSE: BP). It is currently selling at approximately $42 and yields 5.1%. It is trading 13% off its 52-week high and has a one-year analyst target price of $51.09, for a 22% potential gain. The 13 analysts who cover it rank it a 2.1 (1.0 = Strong Buy, 5.0 = Sell) with five Strong Buys, three Buys, and five Holds. BP has actually been on my Top Investors list for three quarters now.
In terms of the experts tracked by GuruFocus, 21 have positions in the company, with 10 buying in the quarter ended Dec. 31 and four selling. Significant positions are held by Charles Brandes, James Barrow (Barrow, Hanley, Mewhinney & Strauss), Richard Pzena (Pzena Investment Management), and Richard Perry (Perry Capital).
On my dividend-scoring system, BP receives an 11.
Vodaphone (NASDAQ: VOD) is currently selling at $26 per share and yields 3.9%. HP is trading 14% under its 52-week high and has a one-year analyst target price of $30.70, for a potential gain of 18%. The five analysts who cover it rank it a 1.8 with one Strong Buy, one Buy, and three Holds.
In terms of the experts tracked by GuruFocus, 18 have positions in the company, with 10 buying in the quarter ended Dec. 31 and three selling. David Einhorn (Greenlight Capital) opened a new position in the company, purchasing 1.6 million shares. Other significant positions are held by Ken Fisher, Hotchkis & Wiley, James Barrow, Dodge & Cox, Charles Brandes and Mason Hawkins (Southeastern Asset Management).
Utilizing my dividend scoring system, Vodaphone receives only a score of 6. I actually haven’t evaluated any company that has scored lower than this!
GlaxoSmithKline (NYSE: GSK) is currently selling at approximately $46 per share and is yielding 6.0%. The stock is trading 4% under its 52-week high, and its one-year analyst target price is $47.09, for a potential 3% gain. The five analysts who cover the company rank it a 2.6 with one Strong Buy rating and four Holds.
In terms of the experts who are tracked by Gurufocus, 16 currently own the stock. Nine experts bought into the company in the last quarter, and three sold. Significant positions are held by Dodge & Cox, Edward Owens, Warren Buffett, PRIMECAP Management, Ken Fisher and Charles Brandes.
GlaxoSmithKline scores an 8 on my scoring system.
The final company, Entergy Corp. (NYSE: ETR), is currently selling at approximately $62 per share and is yielding 5.4%. The stock price is 17% lower than its 52-week high, and its one-year analyst target price is $64.86, for a potential 5% gain. The 16 analysts who cover the company rank it a 2.6 with one Strong Buy rating, one Buy, 11 Holds and three Underperforms.
In terms of the experts who are tracked by Gurufocus, 10 currently own the stock. Six experts bought into the company in the last quarter, and two sold. Significant positions are held by Jean-Marie Eveillard (First Eagle Investment Management), Brian Rogers, Richard Pzena, and James Barrow.
Entergy also scores an 8 on my scoring system.
While I admire all of these famous investors and acknowledge that they have much more experience than I do, I cannot agree with them regarding any of the companies on this list.
Of course, I expect that their reasons for buying into a company are far different from my own, but I dislike these all based on their limited history of paying dividends, their lousy one-year returns and poor prognosis for their next five years’ earnings growth rates. The only thing attractive about these five companies, in my opinion, is the generous yield. But it’s not enough for me.
khern0203 has no position in any stocks mentioned. The Motley Fool recommends Vodafone. 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!