Today with computers and online access, large and small investors can find dividend-paying companies increasing in price. Having your cake and eating it too is more possible than ever.
Obviously not every dividend-paying stock rising in price is a buy; consequently I search for those that offer a favorable risk-to-reward. Take a look and see if you agree.
Conagra Foods
Background: ConAgra Foods has transformed itself into an industry-leading, branded and value-added food company.
52-Week Range: $23.64 to $30.55
Price-to-Book: 2.7
Earnings Payout Percentage: 63 percent
Conagra Foods pays $1 annually in dividend payments. The yield based on a recent price is about 3.3 percent.
Not surprisingly, the last reported short interest is only 1.6 percent of the average trading float. Short sellers are the smart money, and with shares now trading near $30, most of the short sellers are under water.
In the last 52 weeks, the shares are about even with a small gain of 1.2 percent. Conagra Foods has an average analyst target price of $33.60. I believe a price target of $36 in the next 12 months is reasonable. After adjusting for dividend payments, if my price target is met, ConAgra will return a gain of over 20 percent. Not a bad first-year start with most any investment.
If ConAgra continues at the current rate of appreciation in the last year investors may anticipate an annual return over 4 percent.
PepsiCo
Background: PepsiCo engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products and other foods worldwide. The company was founded in 1898 and is headquartered in Purchase, N.Y.
52-Week Range: $62.15 to $73.66
Price-to-Book: 5.1
Earnings Payout Percentage: 56 percent
Pepsi pays $2.15 annually in dividends for a yield of 3.1 percent.
Shares have moved higher in the last month, with a 7-percent improvement. The major moving averages are trending higher, and Pepsi remains in a strong bull trend.
After retracing in price, Pepsi is now on sale with an average analyst target price of $76.54. I believe the price target is reasonable, but more importantly, increasing dividend payments is the paramount consideration for the long-term investor.
Short sellers are next to impossible to find. Short interest is so low I only include it to demonstrate the smart money is not betting against this company — 0.7 percent of the float is short based on the last reported numbers.
Dow Chemical
Background: Dow Chemical is a science and technology company that provides innovative chemical, plastic and agricultural products and services to many essential consumer markets.
52-Week Range: $26.77 to $36.08
Price-to-Book: 2
Earnings Payout Percentage: 88 percent
Shareholders receive $1.28 annually in dividend payments. The yield is an enticing 4 percent. With a payout of nearly 90 percent, I would normally take a pass, however, 2013 earnings are estimated at $2.44. Based on 2013 estimated earnings, the payout rate will shift downward closer to 50 percent.
In the last month, Dow jettisoned 40.5 percent higher and appears mostly on track to continue. Look for a price retracement as an entry signal. With a little patience, an entry near $31.50 is reasonable. I am not a big fan of chasing stocks, and buying north of $32.50 before a base is built feels like chasing to me.
In the last 52 weeks, shares are about even with a small gain of 1 percent. Dow Chemical has an average analyst target price of $33. We are all but there already. I expect we will read about upward moving analyst's price targets in the first quarter 2013.
Johnson & Johnson
Background: The world's sixth-largest consumer health company. The headquarters is in New Brunswick, N.J.
52-Week Range: $61.71 to $72.74
Price-to-Book: 3.4
Earnings Payout Percentage: 77 percent
I have written many bullish articles about or including J&J, and the company keeps going like the Energizer Bunny. J&J features an oversized dividend yield of 3.4 percent along with an investor pleasing upward trajectory price chart.
The company currently pays $2.44 in dividends, but after adjusting the estimated 2013 earnings, the payout ratio falls to under 50 percent.
J&J's moving averages are clearly in a bullish trend, however, unlike Dow, J&J has climbed at a more moderate pace. The current trading range doesn't necessitate waiting for a price retracement. Investors may fire at will and gain exposure when convenient.
The one-year return is 2.8 percent, and the average analyst target price for Johnson & Johnson is $75.41. With short interest above 5 percent, investors will want to monitor changes to know if short sellers turn up the warning signals. Otherwise, the current 5 percent of the float short is relatively small and not a major concern.
Vale
Background: Vale engages in the exploration, production and sale of basic metals in Brazil and internationally. Vale was founded in 1942 and is based in Rio de Janeiro, Brazil.
52-Week Range: $15.77 to $26.87
Price-to-Book: 1.3
Earnings Payout Percentage: 34 percent
Investors are receiving 62 cents in annual dividends. Even following the massive 67 percent price increase in the last month, the yield remains above 3 percent.
Based on the price chart, I want to see a base built in the price before entry. A test of the 200-day moving average near $19.50 is an attractive entry point. The average analyst target price for is $22.60.
Short sellers may gain interest after such a fast climb. Make sure to check before buying to see if there is an appreciable increase in short interest. If so, pull the entry price range lower into the $18.50 area (the price zone I would expect many shorts to take profits). Currently short sellers are hard to find with only 1.2 percent of the average trading float short.
General Electric
Background: General Electric is one of the largest and most diversified industrial corporations in the world. GE is engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity.
52-Week Range: $17.15 to $23.18
Price-to-Book: 1.9
Earnings Payout Percentage: 52 percent
I am a big fan of GE and especially so near $20 (or less). GE is politically connected, financially connected and management talent connected. Clearly they went overboard during the financial meltdown, but they are back from the dead. One could argue GE is stronger than ever; especially after this month's announcement of another dividend hike.
Shareholders can expect to receive 76 cents annually in dividends, and a yield about 3.5 percent.
GE has 13 buy recommendations out of 17 analysts covering the company, along with four holds, and zero sell ratings.
The stock appreciated 4.1 percent in the last year, and the average analyst target price for GE is $24.71. Wednesday the price dropped below the 60-day moving average, but well above the bullish indicating 200-day moving average.
There are not very many stocks that I consider worth buying and forgetting about. GE is one of them, and it appears reasonable to expect current buyers will look forward to a dividend yield over 4 percent by this time next year.
