Ten high-quality dividend stocks for the next 5 years

In an article just posted at TheStockAdvisors.com, investment advisory service IQ Trends offers a look at its current “Timely Ten” high-quality dividend-paying stocks. According to IQ Trends, these are “undervalued” stocks offering good long-term dividend growth, an S&P dividend and earnings quality rating of A- or better, and low debt and payout ratios, as well as the potential for imminent capital appreciation.

Here’s my quick take on the current “Timely Ten” 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):

Abbott Laboratories [[ABT]] (*****) – This healthcare products maker and Dividend Aristocrat recently increased its quarterly dividend by 11% to $0.40 per share. Its stock has spent years trading well above its long-term linear regression trendline, which is currently located about $10 below the stock’s current trading price of about $48 (and dividend yield of 3.4%), suggesting the possibility of above-average downside risk. Valuation analysis suggests ABT is anywhere from roughly fairly valued here to somewhat undervalued. I would most certainly become interested at lower levels (i.e., under $40 per share).

Altria Group [[MO]] (0 stars) – Like ABT, the shares of this tobacco products maker have spent the last several years trading well above their long-term linear regression trendline (which is currently located at about $12), suggesting downside risk from their current level of almost $17 (and dividend yield of 7.6%). Valuation analysis suggests the stock is anywhere from roughly fairly valued (based on DCF) to significantly overvalued (based on comparison with recent historical valuation ratios). Tobbaco tax and litigation risk add uncertainty to the overall picture going foward. The fact that MO remains a favorite pick among many analysts is another potential negative IMO. I already own its spin-off, Philip Morris International [[PM]], as well as Reynolds American [[RAI]], so am steering clear of MO for now.

Coca Cola Co. [[KO]] (*****) – Coca Cola Co. recently raised its quarterly dividend by 8%, to 41 cents from $0.38 per share, as befits its status as a Dividend Aristocrat. Trading at about $43 and yielding 3.9%, the shares of this soft drinks company appear fairly valued to undervalued here. I’d become interested on a retest down to the mid to low $30s.

Colgate-Palmolive [[CL]] (*****) – This maker of personal consumer products recently announced a 10% increase in its quarterly dividend to $0.44 per share. Trading at about $57 and yielding 3.1%, the shares currently appear roughly fairly valued, with some methods suggesting overvaluation and others undervaluation. The stock is trading above its long-term linear regression uptrend line (located at about $52) and would appear to have plenty of room on the downside. A retest of its ’04 lows would bring the stock down to the low $40s, at which point I’d become more interested.

Emerson Electric [[EMR]] (*****) – At its current price of about $27 (and 4.5% yield), EMR appears somewhat undervalued based on conservative estimates. EMR is a Dividend Aristocrat and has increased its dividend for 52 consecutive years. 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). I’m currently short some puts on EMR, which may result in me being put the stock for a net cost basis of below $25 per share.

IBM [[IBM]] (***) – The shares of this information technology products and services company are yielding 2.2% at their current price of about $93. 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.

Johnson & Johnson [[JNJ]] (*****) – At about $52 and yielding 3.6%, the shares of this healthcare product manufacturer appear roughly fairly valued to somewhat undervalued here. Recent price action suggests risk of further downside in the coming weeks/months. A retest of its ’02 lows would bring the stock down to the low $40s. I’ll start becoming very interested in this Dividend Aristocrat if it reaches $45 or below. (See my full take on Johnson & Johnson.)

Molson Coors [[TAP]] (0 stars) – Currently trading at about $33 and yielding 2.4%, the shares of this brewer appear roughly fairly valued to undervalued. I might get interested if the stock drops into the mid $20s and begins yielding over 3%, but its undistinguished dividend growth history may still put me off.

Union Pacific [[UNP]] (0 stars) – The shares of this railroad company appear somewhat undervalued here at about $39 (and yielding 2.7%). A retest of its 2002-03 lows would bring the stock price down to the mid $20s, at which point I would become very interested. In the meantime, I’m currently short some puts on Norfolk Southern [[NSC]] – a company with a more consistent dividend growth history.

United Technologies Group [[UTX]] (****) – At about $41 and yielding 3.8%, the shares of this aerospace/technology conglomerate are just now back down to their long-term linear regression uptrend line after trading well above it for five years, suggesting the potential for more room on the downside. By most valuation measures UTX is currently undervalued. A retest of its ’03 lows would bring the share price down to the mid to upper $20s, at which point I would most certainly be looking to initiate a position.

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