When I examine stocks that pay large dividends, I want to avoid the "yield-traps" and stick with companies that are solid fundamentally.
Take a look at these winners in both share price and dividend yield.
Background: ConAgra Foods has transformed itself into an industry-leading, branded and value-added food company.
52-Week Range: $23.64 to $28.80*
Book Value: $11.22
Earnings Payout Percentage: 63%
ConAgra currently has an annualized dividend of $1, with a yield of about 3.5 percent.
After announcing a large special dividend and buyout, shares jumped. ConAgra is a great stock, but don't chase this one higher. Wait for profit-taking and a lower price (less than $29) before entering.
Eight of 15 analysts now rate the company a "hold," while seven recommend buying and no analysts recommend selling. For a company analysts are mostly rating a "hold," the stock really appreciated, gaining more than 20 percent in the last year, and consensus analyst target price is $30.17.
Watch for rising price targets if shares maintain the $30 price range after the ex-dividend date.
The last reported short interest is paltry and only 1.6 percent of the average trading float. The relative payout percentage of earnings towards dividends is small enough to consider the dividend safe.
Procter & Gamble
Background: Procter & Gamble manufactures and markets a broad range of consumer products world wide.
52-Week Range: $59.07 to $70.83
Book Value: $23.09
Earnings Payout Percentage: 58%
P&G currently has an annualized dividend of $2.25, yielding 3.2 percent. I have recommended P&G before, and can you blame me? The price-to-earnings multiple is under 20 for both the trailing 12 months and the forward estimates. P&G closed at $66.68 and paid out 56.2 cents in dividends since the closing price of the last article. I don't think this company is finished rewarding investors yet.
The shares are modestly higher from a month ago, but are only about a dollar from the 52-week high. The stock appreciated 14 percent in the last year, and the average analyst target price is $74.85.
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. Based on the last reported numbers 0.8 percent of the float is short.
Background: Taiwan Semiconductor engages in computer-aided designing, manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices; and manufacturing masks.
52-Week Range: $12.14 to $16.97
Book Value: $4.45
Earnings Payout Percentage: 39%
The company currently pays 40 cents per share in dividends for a yield of 2.4 percent.
Taiwan Semiconductor is like an Asian Energizer bunny. It keeps going and going. In the last month alone, the stock climbed 9 percent. Taiwan Semiconductor continues to make new 52-week highs just about every time I pull up the charts to look at it.
If you have a strong constitution, you can buy right into strength and ride out the volatility. Otherwise, the conservative (and my personal approach) is to wait for a retracement from profit-taking. After shares ease back (assuming they do), enter into a position by scaling in.
Four of seven analysts now rate the company a "hold," while one recommends buying and two recommend selling. Analysts may have missed a good one. In the last 12 months, the shares have really moved higher. The one year return is 38 percent, and the average analyst target price for Taiwan Semiconductor is $15.52.
Almost zero desire by short sellers to move against this stock. Short interest hardly moves the needle with only 0.5 percent of the float. If you don't add this one to your portfolio, at least add it to your watch list. A lot can be gained just by watching the price action of a strong trending stock.
Johnson & Johnson
Background: The world's sixth-largest consumer health company. The world's largest and most diverse medical devices and diagnostics company. The world's fifth-largest biologics company and the world's eighth-largest pharmaceuticals company.
52-Week Range: $61.71 to $72.74
Book Value: $20.95
Earnings Payout Percentage: 77%
Investors are receiving $2.44 in dividends for a yield of 3.5 percent. On Aug. 29, I wrote about J&J and the closing price was $67.37. It didn't take long for J&J to move higher, and along with the capital gain, J&J paid 61 cents in dividends since. Conversely, the S&P 500 didn't fare quite as well. The overall market is down slightly.
Analysts as a whole like this company. Currently, J&J has 14 "buy" recommendations out of 26 analysts covering the company, along with 11 "holds," and one rates it as a "sell."
Shares have really appreciated, gaining 12 percent in the last year, and the average analyst target price is $75.13.
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 5.8 percent of the float short is relatively small and not a major concern. It's actually declined since my Aug. 29 article, a very good sign.
Background: Altria Group through its subsidiaries makes and sells cigarettes, smokeless products, and wine in the U.S. and internationally. Founded in 1919, it is headquartered in Richmond, Va.
52-Week Range: $27.65 to $36.29
Book Value: $1.91
Earnings Payout Percentage: 90%
Altria pays out $1.76 annually in dividend payments. The yield based on a recent price is 5.3 percent. After dipping below $31, shares have lit up again. Shares are above the highly watched 200-day moving average.
Altria is the classic example of why you want to buy on dips. Granted, Altria appears to be more of a tax collector than company. The most expensive ingredient in their products is the tax. While small compared to what the government takes, Altria is still able to make a relatively strong and consistent return for investors.
The percentage payout is very high by most company's standards, but this is an almost pure dividend play. Do I expect the share price to continue higher? Yes I do, but the last time smoking was cool was when Vincent Vega rolled his own and gave it to Mia Wallace while waiting for a $5 milk shake. So don't hold your breath waiting for the popularity of smoking to increase.
With that said, the profitability is stable and other than the occasional court action, is expected to remain so.
Analyst opinion is mixed with this company. Most of the analysts surveyed don't believe a "buy" or a "sell" is currently warranted. Today, Altria has seven "buy" recommendations out of 15 analysts covering the company, seven "holds," and one recommends selling. The stock appreciated 23 percent in the last year and the average analyst target price for is $36.14.
The last reported short interest is only 2 percent of the average trading float. Basically, there is 2 percent out there that wished they never heard of Altria and are probably ready to take their losses.
Background: Cisco Systems designs, manufactures, and sells Internet protocol based networking and other products related to the communications and information technology industries worldwide. Founded in 1984, it is headquartered in San Jose, Calif.
52-Week Range: $14.96 to $21.30
Book Value: $9.92
Earnings Payout Percentage: 23%
In the last month, the stock performed well with a 9.2 percent increase. If you added to your portfolio while shares traded under $18, well done. If not, it's not too late as shares are still heavily discounted due to fears of economic headwinds.
Cisco currently pays 56 cents per share in dividends for a yield of 3 percent. As a result, investors can sit on their hands and wait it out. At 3 percent, you're a lot better off than letting it sit in a bank earning 0.5 percent.
Analysts as a whole like Cisco as much as I do. Currently, Cisco has 29 "buy" recommendations out of 46 analysts, along with 14 "holds," and three have given it a "sell" rating. The one year return is 8.2 percent, and the average analyst target price for is $21.59.
—By TheStreet.com Contributor Robert Weinstein