Archives for November 2009

Cash Back For Shareholders

To pay dividends or not to pay dividends? That is the question. Companies such as Hershey’s, Proctor & Gamble and Johnson & Johnson pay out healthy dividends which allow investors to purchase more shares or receive cash distributions. While companies such as Google, Amazon and Apple eschew paying dividends in order to reinvest earnings back into their businesses. This strategy works well as long as the company is fueling business growth with the extra cash. Listed below are 3 companies that I believe could be rewarding shareholders with greater dividends.

#3 Dell Inc. (DELL) – With over 13 billion in cash on its balance sheet; Dell could afford to pay a dividend to shareholders just like competitors Hewlett Packard and IBM. The company currently offers no dividend and the stock has been a dog for the past decade. Dell’s stock buybacks have done little to increase the company’s beaten down stock price. The days of double digit growth are over and Dell is no longer a growth story. It only stands to reason that the company should offer investors some compensation via dividends.

#2 Exxon Mobil (XOM) – Exxon is the leading petroleum company in the US and has astronomical earning power. Exxon has a low dividend payout based on its earnings per share. BP, Chevron and ConocoPhillips all offer more generous yields. Exxon does offer price appreciation to its shareholders but the company could offer more cash to investors via distributions.

#1 Microsoft– Mr. Softy is the epitome of the term “cash cow”. Microsoft has loads of free cash and the software giant has had single digit EPS growth over the past 5 years. The stock is touted year after year as being cheap by financial experts. The stock has done nothing since the tech bubble implosion. This is a company that could increase its dividend payout to 3% and reward its longsuffering shareholders.

5 Good Dividend Plays

With the recent run up in the stock market, it is becoming increasingly difficult to find solid dividend plays. Below is my list of some of the best high yielding stocks.

AT&T (T), Verizon (VZ) – These two telecommunications giants both yield over 6%. Verizon currently trades at $32 per share and has a robust dividend of $1.90 per share. AT&T trades at $27 per share and pays out $1.64 per share. Both companies are trading at 12 times next years earnings estimates. If I had my pick I would invest in Verizon and its growing subscriber base.

British Petroleum (BP) – BP has long been my favorite oil stock since it was priced in the low $30’s. The oil conglomerate was yielding over 10% back in March. BP now trades for just under $60 a share and still yields 5.7%. I have owned BP for a few years and will continue to own the stock for its healthy dividend.

Kraft (KFT) – Although the stock has done virtually nothing over the past five years, Kraft is more then just mac and cheese. Kraft does has a solid dividend yield of 4.3%. Kraft is priced at $26.85 and pays $1.16 to its shareholders.

Eli Lilly (LLY) & Bristol Meyers(BMY) – These 2 pharmaceutical generate large amounts of free cash flow and yield 5% and 5.3% respectively.

Solid Buys

I picked up additional shares of Bank of America(BAC) and General Electric(GE) this week. Both stocks were trading in the $14 range and still seem undervalued on a long term basis. I also added shares of the Rogers International Commodity Index ETN(RJI). I think that commodities such as oil, gold and agricultural products have a lot more room to run.