Large Caps with Big Payouts

Jon 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 doing some shopping for my portfolio, looking for ways to better round it out.  One thing lacking from my portfolio, with the exception of Bank of America (tongue in cheek), is a dividend stock.  I'd like to get one that pays out a big dividend.  But I don't want the added risk of a small-cap company.  I want the stability of a large cap company.  So, I searched for large cap stocks with a dividend payout of over 10%.  The stock screener I used came up with five options:

  1. Southern Copper (NYSE: SCCO)
  2. American Capital (NASDAQ: AGNC)
  3. France Telecom (NYSE: ORAN)
  4. VimpelCom (NASDAQ: VIP)
  5. Annaly Capital (NYSE: NLY)

These are the five companies I've picked out for this article.  I want to see if I can answer the following question: "which offers the best investing opportunity for buy and hold investors?"

Quick Glance at some Statistics

To get a quick overview of value at this moment in time, I've picked out a few statistics.  I looked at price to earnings to get an idea of what the shares are worth at this moment in time, and what they will be worth in a year's time.  I look at the dividend and the yield, obviously because I'm looking for a dividend stock.  Net income is assessed to see how much cash the company actually has for the dividend in the first place.  And finally, I'm interested in profit margin, because I'm trying to get an idea of how safe those profits are.

Company P/E Forward P/E Dividend/Yield Profit Margin Net Income
Southern Copper  15.79 14.34 $11/30.3% 29.01% $1.94 Billion
American Capital 12.77 n/a $5/15.8% 70.14% $668.48 Million
France Telecom 5.97 6.34 $1.50/14% 8.28% $4.77 Billion
VimpelCom 17.68 8.9 $1.49/13.8% 4.19% $963 Million
Annaly Capital 10.17  9.91 $2/13.6% 78.42% $1.46 Billion 

But looking at all these number for five companies can be a little overwhelming.  To help us discover which may be the best value of the five, I've assigned a numeric value to each company in each metric.  One is the best. Five is the worst.  We'll add these numbers up to get a score.  A perfect score, therefore, would be five.  

Scores:

  • Southern Copper 14
  • American Capital 17
  • France Telecom 10
  • VimpelCom 20
  • Annaly Capital 14

Based on these static statistics, France Telecom seems the best value of the five at this moment in time.  They have a very low price to earnings ratio, a huge dividend, and bring in a ton of money.  Profit margin was a little low compared to the others.

Which Way Are We Going?

Like I've already said, looking at the numbers above gives you an idea of where a company is at.  Not where they're going.  It's like a snapshot.  To get an idea of which way these companies are going, I've included a couple of charts that will show us some movements over the last five years.  As any financial report will tell you, past performance is not a guarantee for the future, but it is relevant none-the-less.

I've included a chart below on revenue.  To me, looking at revenue is close to looking at customer base.  A big drop in revenue could indicate a big drop in customers, unnerving for an investor.

SCCO Revenue TTM data by YCharts

First let me mention that the chart system has a glitch.  It's not allowing me to display France Telecom's revenue.  According to the information I have, France Telecom's revenue has been basically flat the last three years, and is down over 10% in the last five years.

When you look at the chart above, your heart races with excitement for Vimpel-Communications.  They have seen revenue get kicked into high gear over the last year and a half.  Southern Copper and Annaly Capital are more-or-less flat over the last five years.  American Capital, meanwhile, is having a nice little run up.

But you should never look at revenues by themselves.  It's a relevant metric, but when divorced from net income, it can lead you to some very wrong conclusions.  Quite often companies gain revenue, and give up profits.  Likewise, a better run company can make more money with less coming in.

SCCO Net Income TTM data by YCharts

You see that the above statement is absolutely true of Vimpel-Communications.  In the first chart it was shown that revenue has more than doubled, but now we see that net income is actually way down.  This is why you always need to look at these two metrics in tandem.

Again, France Telecom wouldn't cooperate and go in my chart, so let me fill in the blank.  Net Income is way down from $6.3 Billion in 2007, to $3.9 Billion in 2011.  However, they are way up from $2.82 Billion in 2009.

Both Southern Copper and Annaly look like a roller coaster ride.  But while Annaly's net income has been choppy, Southern Copper had a big slide, followed by a currently very good increase.  Meanwhile American Capital has been a fairly steady climber.

How Safe's The Dividend?

Let's look at how these companies have been with their dividend and the dividend yield over the past five years. 

SCCO Dividend Yield data by YCharts

According to all the data you can find on Yahoo or Google, or even this chart, it indicates a very good dividend for Vimpel.  That's a bit odd, considering when you go to Vimpel investor relation website, you discover that so far they haven't paid a dividend for 2012, and there's no guarantee they will.  They've said that they'd like to pay out $0.80/share.  That's right around 8%.  I didn't mention this before now, to illustrate that due diligence is more than what meets the eye at first glance.  Sometimes you have to dig a little deeper to get the real info.

Southern Copper's dividend spiked recently.  The chart above is showing an annualized return of 30%.  Before you get too excited, I haven't read anything that would suggest this high rate is going to continue.  This seems to be a nice little one-time bonus for those who were shareholders at the time.  I expect dividends to return to normal around 8% or so.  Still not too shabby.

Both Annaly Capital and American Capital have had consistent and somewhat steady dividends.  France Telecom's dividend seems to be the one with the best general uptrend.

Conclusion

Based on what we've looked at, I think that both Southern Copper and American Capital are worth a closer look.  Both were pretty solid in everything we looked at.

But of all these companies, I liked France Telecom the best.  They are certainly the cheapest in regards to their company's valuation.  They have a very high dividend.  I feel like perhaps market sentiment has brought this stock lower on European Union fears.  The risk is certainly there, but there seems to be a lot of upside for those who dare invest.

 

 


thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of France Telecom (ADR) and Annaly Capital Management. Motley Fool newsletter services recommend France Telecom (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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure