BusinessWeek has just created a slide show of the U.S. companies with the safest dividends, based on picks they collected from portfolio managers and other investing experts. Below are my quick takes on all the picks that offer a greater than 2% yield (the stars represent Dividendinvestor.com’s star ranking system – three stars are five years of consecutive dividend increases, four stars are ten, and five stars are 20):
Johnson & Johnson [[JNJ]] (*****) – After trading well above its long-term linear regression trend line for many years, JNJ is finally coming down (it’s currently at $50). I’ll become very interested in this healthcare products manufacturer if/when it trades at $45 or below. (See my full take on Johnson & Johnson.)
Paychex [[PAYX]] (*****) – PAYX seems to be reasonably valued here (at about $22 per share). A long-term chart suggests it may be headed back to its 2002 lows at around $18. A high payout ratio and low single-digit dividend growth reduce the appeal of this payroll services provider to me, although I’m going to keep an eye on it.
Genuine Parts [[GPC]] (*****) – GPC here (at about $28) seems about fairly priced based on conservative estimates. I’m actively following this automotive parts distributor with an eye toward buying it at $25 or below.
Emerson Electric [[EMR]] (*****) – At its current price of about $27, EMR appears fairly or slightly undervalued based on conservative estimates. I’m actively following this industrial equipment and services provider and looking for a buying entry somewhere below $25. Based on its long-term price chart, the stock might be expected to find solid price support somewhere in the low $20s (although it dropped to the $18 range in 2000).
Abbott Laboratories [[ABT]] (*****) – ABT, like JNJ, has spent years trading well above its long-term linear regression trendline, which is currently located at about $36 – more than $10 below the stock’s current trading price. This suggests the possibility of above-average downside risk. Valuation analysis results for this healthcare products maker range from about fairly valued here (at about $47) to overvalued. I’m staying away for now.
International Game Technology [[IGT]] (***) – I hadn’t previously looked at this computerized gaming equipment maker as a possible dividend play, but it looks interesting. At its current price of around $9 it appears undervalued based on conservative earnings estimates. The company appears to have significant debt, however, which is not a good thing in the current environment. Long-term price support appears to be at the $5-$7 level.
Verizon Communications [[VZ]] (0 stars) – VZ here (at about $28.5) appears to be fairly to slightly overvalued. A test of its ’02 lows would bring it back down to the low $20s. According to BusinessWeek, the company is very committed to its dividend – something I hadn’t known when I chose to initiate a position in AT&T instead. I’m keeping an eye on this telecom services provider and might look to initiate a position at lower prices.
Diebold [[DBD]] (*****) – BusinessWeek ranks the dividend of this maker of ATMs, security systems and election equipment as “very safe,” compared to “probably safe” for many of the other names on this list. DBD here (at about $22) appears undervalued and is yielding about 4.7%. I’m actively watching this with an eye toward buying it around long-term support at about the $18-$20 levels.
Bristol-Myers Squibb [[BMY]] (0 stars) – BMY here (at about $18.5) appears undervalued based on discounted cash flow analysis, but overvalued based on comparison to recent historical valuation metrics. That, the company’s spotty dividend growth record and the fact that I already have a position in another drug company (PFE) are enough to keep me away.
Intel [[INTC]] (***) – By some measures the stock of this computer chip maker is undervalued here (at about $12.75), but by others – based on conservative earnings forecasts – it’s overvalued. The stock is currently trading at or below its ’02 lows, and if it doesn’t hold here looks like it could see single digits. I’m staying away for now.
Chevron [[CVX]] (***) – The stock of this integrated energy company appears either fairly or – based on conservative earnings estimates – overvalued here (at about $61). The technical picture supports the latter, as CVX is still trading well above its long-term linear regression trendline (currently located at about the $43 level), suggesting – but not necessarily predicting – that it has plenty of room to correct on the downside. I’m staying away for now.
Illinois Tool Works [[ITW]] (*****) – The stock of this industrial products manufacturer appears roughly fairly valued here (at about $28) to perhaps somewhat overvalued if conservative earnings estimates are used. Long-term technical support appears to be in the low $20s, which is where I’m looking to initiate a position.
Mattel [[MAT]] (0 stars) – The stock of this toy product maker appears fairly valued here at about $11-$12. A test of its 2000 lows would bring it down to the $8 level, with long-term support at around $5-$6 below that. Between that and its non-distinguished dividend history, I’m staying away.
Gap Inc. [[GPS]] (0 stars) – The stock of this casual apparel retailer appears to be fairly to somewhat undervalued here (at about $11). A retest of its ’02 lows would bring the stock down to the $8 level. I might take another look at it as a potential retail sector candidate if it trades in the single digits again.
Waste Management [[WMI]] (***) – I can’t get excited about the stock of this waste services provider at current levels (about $27). Although it’s trading below its long-term uptrend line, valuation analysis suggests it’s somewhat to significantly overvalued here. It has been outperforming relative to the market, and if it were to retest its ’02 lows it would have to drop to $18. I’m staying away for now.
Procter & Gamble [[PG]] (*****) – The stock of this consumer products maker has, until recently, been trading well above its long-term linear regression trendline, making it relatively unattractive from my perspective (see my full take on Procter & Gamble). Now trading at about $48, it appears roughly fairly valued. I’ll start to get interested below $45 and would prefer to initiate a position below $40.
Clorox Corporation [[CLX]] (*****) – Like PG, the stock of this consumer products maker is trading above its long-term linear regression trendline, suggesting a higher degree of downside correction risk. CLX appears somewhat to possibly significantly overvalued here (about $49). It might be worth another look if/when it falls below its long-term uptrend line (at $44-$45), although I’m not crazy about the company’s negative book value.
Sysco [[SYY]] (*****) – The stock of this food distributor appears about fairly valued here (at about $22). I’ll become very interested in SYY if it falls into the teens. The $20 level appears to offer support, and below that, $18.
Automatic Data Processing [[ADP]] (*****) – At its current price of about $34, the stock of this data processing company appears fairly to somewhat undervalued. A retest of its October ’07 lows would bring ADP back down to the low $30s, and a retest of its ’03 lows down to about $25. I’ll become increasingly interested at the $30 level or below.
AT&T [[T]] (0 stars) – The stock of this telecom services provider appears to be fairly or somewhat undervalued at current levels (about $23-$24). There appears to be long-term support at the $20-$22 level, and below that at the $16-$18 level. I currently have a short put options position in this stock that may ultimately end up with me being put the shares for a net cost basis of below $20 a share.
PPG Industries [[PPG]] (*****) – The stock of this manufacturer of coatings, glass and chemical products appears somewhat undervalued here (at about $31). Strong cash flow and a 37-year history of consecutive dividend increases should bode well for a continued dividend. I have a short put options position in this stock that may ultimately end up with me being put the shares for a net cost basis of below $32 a share. (I may adjust this if the stock drops significantly from current levels.)
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