Everyone loves a good value. In search for one, it makes sense for most investors to be looking for high quality companies trading for a good price rather than mediocre companies trading at bargain prices. Dividend stocks on this list each face certain risks and are not necessarily recommendations, but they may not be a bad place to look for some solid dividend investments. So, without further delay, here’s five high-quality names currently on the discount rack:
Chevron (CVX)
Chevron is the second largest oil company in the United States. Although the company experienced a decline in revenue and earnings in 2009 due to falling oil prices, the company remained profitable, continued to grow its dividend and assets, and now is in a period of recovery with an exceptionally strong balance sheet. The company managed to increase its shareholder equity by an average of 10% per year over the past five years, straight through the recession.
Through a combination of increased worldwide energy demand, core production growth, dividends, and share repurchases, Chevron may be poised to outperform over the long-term.
Dividend Yield: 3.40%
Trailing P/E: 10.0
Full Analysis
Texas Instruments (TXN)
Texas Instruments is one of the country’s largest semiconductor companies. Although they’re quite well-known for their calculators, the company focuses on analog, embedded, and wireless products, and has a large market share in all of those categories. Texas Instruments benefits from increased usage of smart phones, and has an excellent balance sheet with a current ratio of 4 and zero debt. Unlike Intel which has been diversifying its business, Texas Instruments has been streamlining and focusing its business into the few primary segments listed above.
The company has high dividend growth, and recently announced a $7.5 billion share repurchase program which, at the current low valuation, is a better bargain than previous share repurchases. The company has been making small acquisitions within its areas of focus, and has increased its manufacturing ability during the market downturn.
Dividend Yield: 1.80%
Trailing P/E: 12.4
Novartis (NVS)
Novartis is a huge global health care company based in Switzerland. The company is incredibly diversified, offering a variety of pharmaceuticals, consumer health products, and animal health products. With a strong balance sheet and quickly growing revenue, the company appears to be in a position to offer great long-term returns. Due to their strong pipeline, the company’s valuation is a bit higher than many other health care companies, but lower than the market in general (and comparable to JNJ).
Dividend Yield: 3.40%
Trailing P/E: 13.3
Exelon (EXC)
Exelon is the largest nuclear energy producer in the United States. With 17 nuclear reactors, Exelon produces energy for millions of people.
Unfortunately, Exelon also has some unfunded pension accounts, and is facing a likely future earnings decline due to low natural gas prices. Low natural gas prices mean that utilities that generate electricity via natural gas are very competitive with Exelon’s nuclear power, and therefore the company’s moat has been temporarily breached.
The low stock price seems to currently be factoring these things in. I wouldn’t look for the dividend to grow much, if at all, until Exelon can increase its earnings. The CEO, however, recently stated that maintaining the dividend is extremely important, and Exelon expects to maintain it even with gas prices staying low for quite a while.
Exelon recently agreed to acquire John Deere Renewables, paying $860 million for over 700 MW of wind power and additional wind power under development.
Dividend Yield: 5.10%
Trailing P/E: 10.4
Full Analysis
Chubb Corporation (CB)
A leading multi-national property and casualty insurer, Chubb is exceedingly skillful and efficient in underwriting, achieving a combined ratio of 86%.
The company’s written premiums have been decreasing somewhat during this recession, but the company’s underwriting has been very profitable. The company has a policy of not sacrificing underwriting quality to chase premium growth. Shareholder returns will be largely driven by dividends and share repurchases, which at the current stock valuation are an excellent value.
Dividend Yield: 2.50%
Current P/E ratio: 8.6
Full Analysis
Full Disclosure: I own shares of CVX, TXN, CB, and JNJ. I have no positions in EXC, NVS, or INTC.
You can see my full list of individual holdings here.
Yes indeedy, quality companies at attractive prices. You must feel strongly for Texas to include it in yer portfolio? Since they are a tech-firm I mean.
Great list. I find EXC interesting because it is really the only power source that we could use to replace our coal and natural gas methods… as they wont last forever.
Defensiven,
I do feel fairly strongly about Texas Instruments. I’ve been looking into them for some time. I wanted some exposure to tech in my portfolio, and Texas Instruments is the company that I understand the most and agree the most with their direction.
In addition, I particularly like the current CEO, as in addition to the streamlined direction of the company, he’s been increasingly shareholder friendly with dividend increases and a large share repurchase plan. So it’s a value tech investment rather than a high-growth tech investment.
Finally tech seems to be fit for a portfolio, as most tech is no longer overvalued as it has been for the past decade. INTC has caught my eye as well but I’m a bit more cautious about it than TXN. Even for TXN, because it is tech, it is allotted only a small portfolio spot.
I’ve got the analysis for TXN coming up on Monday. I wrote it weeks ago but I’ve had a backlog of analysis reports.
Dd,
From my understanding, natural gas has 100 years of reserves in the US, and coal has 500 years. Exelon, however, can benefit from environmental regulation. And, even without regulation, nuclear power is straight-up cost effective.
Ok, will be interesting to read! Nice to see a techcompany that sticks to its core. I do love my Texas pocket calculator.
Yes there are some good prices out there for “boring” or unglamourus techfirms like Intel or MSFT. Btw, have you looked on GPS-maker Garmin? In my view one of the best risk/rewards ive seen. Theyve had some hard years since the financial crisis with stagnant earnings. But their global market share is the same. Historic growth is huge, finances are superstrong and the valuation is lovely.
I am looking forward to an analysis of texas instruments. Even though it is only selling at 12 x earnings, the dividend yield is low at 1.78%. I’m interested to see why you think TXN is a worthwhile investment.
Barry: Dont forget the sharebuybacks! They seem to have been massive. The shares have been decreasing with about 6% per year since 2004. (based on morningstar data)
With the way oil prices went down, it’s impressive that CVX proved they could not only stay afloat, but continue to thrive through the recession. It will be very interesting to read the full analysis of CB, as well.
Defensiven,
No, I have not looked into Garmin much. I don’t use a GPS myself, so I have little direct knowledge of the industry. Some people I know use their smartphones as a GPS, which threatens Garmin’s business model. The valuation could make it attractive, but I’d have to look into it more.
Intel and Microsoft are both value stocks as well. I’ve written an analysis on Intel already, and probably will post it in 2-3 weeks. I’m still on the fence about an investment in Intel. Currently, they’re doing the opposite of Texas Instruments, and diversifying their business. But the valuation is lower and the dividend yield higher.
Barry,
The primary summary for my TXN investment is:
-Solid dividend growth in the last few years
-Great semiconductor niches to be in, and I have direct experience with using many of their chips
-Recently announced huge share repurchase plan, which at this valuation seems like a solid way to return value to shareholders.
-Extremely good balance sheet. No debt, tons of cash.
Plus, I used cash from a sale of a stock that, at the time, was my only non-dividend individual stock. So even though Texas has a low yield, the transaction actually increased my overall portfolio yield slightly so it didn’t particularly bother me. I will keep any positions in tech companies I make relatively small compared to some other positions, as it’s more difficult to predict their performance for the long-term.
Jessica,
Thanks for the comment. The top oil companies generally stayed profitable through the recession, but at significantly reduced levels. Most of them handled it well, and continued to invest in business growth. I find Chevron’s management to be particularly strong
Garmins history can be seen as a good example of the risks of techstocks. For about 10 years, until 2007, its growth was impressive and everything was going its way. Also a new glamourus, promising product which “must” be a successhistory. Then came smartphones and economic downturn. PE 2007 was 25 and PB 9. Today PE is 9 and PB 2..
But I think it can be good contribution at todays price. Personally I would not trade a standalone GPS for a smartphone in my car/boat/airplane/outdoor activity. I think GPS-buys will increase again when the economy recovers. Garmin has kept its 40% global marketshare in the last hard years. But I lack the stomache and knowledge to go into techstocks:)