Dividend income fund manager’s 6 favorite dividend stocks

In an interview in Barron’s this week, Judith Saryan, a co-manager of the Eaton Vance Dividend Income Fund [[EDIAX]] offered a half dozen of her favorite dividend stocks (see below), based on the cash on their balance sheets, cash flow, and the amount and maturity of debt they had coming due.

Here’s my quick take on the six dividend stocks mentioned (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):

AT&T [[T]] (0 stars) – Trading at $23 and yielding 7%, the shares of this telecom services provider appear to be fairly or somewhat undervalued at current levels. 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.

IBM [[IBM]] (***) – The shares of this information technology products and services company are yielding 2.3% at their current price of about $87. Valuation and technical measures suggest the stock is about fairly valued here. A retest of its ’02 lows would bring the share price down to the $50 level. I’d start to become interested if the stock dropped to a point where it was yielding about 3%, which currently means a level of around $65 or lower.

Northern Trust [[NTRS]] (***) – Trading at almost $54 and yielding a little over 2%, the shares of this bank holding company appear about fairly valued based on the stock price versus its long-term trendline, but overvalued based on valuation. It doesn’t appeal to me here, but I’ll certainly be interested if it revisits (or drops below) its November lows at around $35, at which point the dividend yield will be 3%.

Verizon Communications [[VZ]] (0 stars) – VZ here (at about $28 and yielding 6.7%) 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.

Vodaphone [[VOD]] (0 Stars) – The shares of this wireless phone services provider are yielding a little over 8% at their current price of about $16.50. (Note: VOD’s dividends are paid twice a year, in unequal amounts, usually with record/payout dates of November/February and June/August, with the August payout always being higher.) Valuation and technical measures suggest the stock is undervalued here. A retest of its ’02 lows would bring the share price down to the $12 level. While a biannual dividend and currency risk are potential issues with this ADR, I may be inclined to initiate a position on further weakness.

Wal-Mart Stores [[WMT]] (*****) – I’ve been in and out of shares of WMT several times over the last few years and am waiting for another good opportunity to get back in. Currently trading at about $49 and yielding 2.2%, the shares appear about fairly valued, and are basically sitting on their long-term linear-regression trendline. A move back into the $30s would probably entice me in.

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