Three Awesome Dividend Plays
Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Finding good investments with long term prospects in a sea of tickers is an arduous venture for analysts and investors alike. What's even more difficult is finding the right industry and quantity to hold in a diversified portfolio, because more or less, we all want to avert the risk of not being fully diversified. So, here I present to you value plays in three investments in three different industries--a growth investment in a pharmaceutical, a defensive investment in a utility and a cyclical investment in a fast-food chain.
1. Novartis (NYSE: NVS)
Novartis is a global developer, manufacturer and distributor of healthcare products and drugs. The company holds a wide portfolio of products including costly patented pharmaceutical drugs, affordable generic medicines, eye care surgical and consumer products under the Alcon subsidiary, vaccines and diagnostic tools for life-threatening diseases, self-medication products like vitamins and even treatments for animals. The company is heavily investing in R&D and rapidly growing. It has recently been buying patents and receiving FDA approvals for its drugs, one after another. Management says that by 2017, the company will have added 14 'blackbuster' drugs to its portfolio of cancer, heart and respiratory treatment. Currently, 139 of its projects are under clinical development and the company will be sending 9 new patented products for FDA approval in the coming 12 months.
Novartis has consistently upped dividends which now stand at $2.46/share. Dividend yield of 3.9% is amongst the highest in peers. With a market cap of $152 billion, the company also boasts very healthy financials. Latest quarter revenues were over $14 billion and the company holds around $5 billion in cash. NVS has lower than average market risk with a beta of only 0.65. Free cash flows of $11.56 billion are the highest amongst peers--Abbott, Sanofi, Glaxo SmithKline and Merck.
2. Duke Energy (NYSE: DUK)
After a merger with Progress Energy, Duke has now become the largest utility in the US. Duke Energy owns and operates regulated (franchised) and unregulated (wholesale) power plants in the US and Latin America. The company's energy generation mix includes nuclear, coal-fired, oil and natural gas-fired, and hydroelectric power plants. Duke's franchised electric utilities produce approximately 49,600 megawatts of capacity serving residents of the Carolinas, Florida, Indiana, Kentucky and Ohio. In Latin America, it has a capacity of about 4,300 megawatts of hydroelectric and thermal energy. The company also sells wholesale electricity.
Duke is currently nearing the completion of its $9 billion fleet modernization program which positions it as a company with one of the most efficient and environment-friendly energy generation plants (both coal-fired and natural gas). A part of this plan is its Edwardsport plant in Indiana that will soon be operational and will employ a cleaner coal-fired energy production method, making it one of the cleanest and most efficient coal-fired power plants in the world. In order to take advantage of President Obama's preference for Green Energy, the company is also growing its portfolio of commercially produced renewable energy and expects to touch total renewable capacity of 2,000 megawatts by year end.
Duke pays an annualized dividend of $3.06/share and has the highest dividend yield of 4.73% amongst peers--Southern Co, American Electric Power, Consolidated Edison, Dominion Resources, NextEra Energy. Duke has a high debt burden on its balance shee,t but when its size is taken into consideration, its debt to equity is actually the lowest. The company has $1.76 billion in cash, however free cash flows are negative--something that will improve once synergies from the Progress Energy merger start getting realized in the coming year. Duke's post merger quarterly revenue growth looks something like this:
DUK has a below market average beta of 0.4 and its forward P/E of 12.06 is the lowest amongst its competitors, making it the cheapest investment.
3. McDonald's (NYSE: MCD)
McDonald's, the worldwide fast-food chain, as of its latest annual filing of 2011, has 33,510 restaurants in 119 countries, more than 27,000 of which are franchised and 6,435 are operated by the company. The fast-food chain employs 420,000 people, generates a revenue of $27 billion and a net income of $5.5 billion. The burger joint is doing exceptionally well in Asian markets of China and India while competitor Yum! Brands warns of China-weaknesses. McDonald's is also maintaining store sales at home while local restaurants like Darden warn of local weaknesses. As of late, the company has also launched their line of coffee putting it in a direct competition with the likes of Starbucks.
MCD, often called the Buffett stock, is a champion of dividends and has a history of consistently paying and stepping up dividends. The stock pays an annualized $3.08 apiece, yielding 3.43%. Its debt to equity is controlled under 1 and it holds cash of $2.18 billion on its balance sheet. MCD's free cash flows of $3.9 billion are the highest, more than twice that of its close competitor Yum! Brands, owner of Pizza Hut and KFC chains. Its forward P/E of 16.9 is the lowest amongst industry peers--Yum! Brands, Dunkin' Donuts, Burger King and Domino's Pizza, making it the cheapest investment of all five.
PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend McDonald's. 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!