4 Highly Rated Large Caps Yielding 5%+
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
No matter what the market is doing it seems like dividend paying stocks will stay in favor. Over the last few years, many investors have realized the comfort of having a dividend check every few months. I'm a big fan of dividend paying companies, and I regularly am looking for new opportunities. However, I want more than just a good yield. To weed out the winners from the losers, I use the Fool.com CAPS Screener. This tool allows you to narrow down a list of companies by traits that are attractive, and in addition you can screen for companies that the CAPS community thinks highly of as well. With this in mind, I recently ran a screen with the following parameters: 5%+ yield, positive revenue and earnings growth over the last 3 years, and a positive return on equity. Just to make sure I also had the backing of the CAPS community, I also wanted companies that scored at least 4 out of 5 stars. Four companies looked particularly attractive and I wanted to do a bit more research on these potential winners.
Altria (NYSE: MO):
This company is the U.S. portion of the former Philip Morris and is well known to most investors. Health advocates have been calling for the death of cigarettes for years, and yet Altria keeps puffing along. Though the lion's share of profits comes from the company's cigarette business led by Marlboro, but the company's investment in SABMiller and smokeless tobacco products gives some diversification to the revenue stream. Altria isn't cheap at about 15 times projected earnings, but analysts are calling for 6.23% growth even in this tough environment. The company has managed to grow both net income and operating cash flow over the last few years as well. With a 5.24% yield at current prices, and a 56% free cash flow payout ratio, the company looks poised to continue its long running streak of dividend increases.
CPFL Energia S.A. (NYSE:CPL):
Think of a utility company in the U.S. and then go back in time about 20 or 30 years and you get CPFL Energia. This company is an electric company in the fast growing economy of Brazil. This isn't the most exciting company you can imagine, but what you get is a utility growing faster than most in the U.S., with a superior yield as well. The stock has been bid up into high-yield euphoria though with the shares trading for almost 27 times this year's projected earnings. Analysts are calling for 6.6% earnings growth, and with net income up over 50% in the last three years, you can see that future growth is certainly possible. The company's dividend yield is 7.6% on a trailing basis. While the company's free cash flow payout is higher than I like to see at almost 75%, this isn't unusual for a utility.
Vale S.A. (NYSE: VALE):
Sticking with the Brazilian theme, Vale is next on the list and is involved in the exploration, production, and sale of basic metals in Brazil and internationally. Since the Brazilian economy is still developing, in similar fashion to CPFL, investors expect Vale to grow faster than a domestically based metals company. Investors seem to be underestimating Vale's capabilities as the stock sells for just 7.28 times projected earnings. These same analysts are calling for over 17% growth in earnings for the next few years. What is really impressive is analysts might be guessing low because the company's net income and operating cash flow have both grown by more than 200% in total over the last three years. The company's yield is also impressive at 6.28%. If there is any knock on Vale, it's the fact that last year Vale paid out 108% of its free cash flow in dividends. If the company continues its rapid growth, this payout issue won't be an issue for long.
Vodafone Group (NASDAQ: VOD):
Vodafone is a worldwide mobile phone service provider. Most investors know Vodafone as the 45% owner of Verizon Wireless. As a participant in the second largest wireless company in the United States, the company benefits from the massive cash flow that Verizon Wireless produces. The company is expected to grow more slowly than either AT&T or Verizon, but the stock sells for a P/E ratio that is lower as well. Though the company's net income has decreased in the last few years, operating cash flow has grown slightly over the same timeframe. The company also offers an attractive yield at 6.9%. Though the company's free cash flow payout is a bit high at 86.92%, this is somewhat normal for telecom companies. In addition, the previously mentioned Verizon Wireless ownership stake gives investors a chance at big cash flow from “Big Red” in the future.
As you can see just by running this relatively simple stock screen, we've discovered at least 3 strong candidates for further research. The only one of the three I would personally avoid is Altria, as the company's long-term prospects are much more uncertain than in years past. While Altria has been able to survive and prosper in the past, the rate of decline in domestic smokers has increased in the last few years. Of the remaining candidates, Vale looks like the most attractive option with a huge dividend, significant growth, and a cheap price relative to projected earnings. Use this information as a starting point for your own research, and see if one of these high-yield large caps deserves a spot in your portfolio.
MHenage has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Vodafone Group Plc (ADR) and Vodafone Group Plc (ADR). 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.