Top 10 Dow Dividend Stocks for February part 2
At least on the share-price front, things have been looking a little rosier for E.I. du Pont de Nemours & Co. (NYSE:DD) — or just DuPont — since the last time we looked at it. DuPont has gained nearly 8% since mid-December, and is solidly in the black for 2013.
Still, the chemicals giant isn’t without a few issues right now.
Dow’s fourth-quarter profits, while still better than hoped for, plunged 70% on revenues that were flat from the year ago. Really weighing on results was a 54% decline in Performance Chemicals profits thanks to lower prices in the paint pigment titanium dioxide. CEO Ellen Kullman also told CNBC that “2013 is setting up to be a cautious year.”
But don’t get too bearish on DuPont. Alongside that cautionary remark, we received a better-than-expected 2013 EPS forecast of $3.85 to $4.05, which should come on revenues of $36 billion — on target with Wall Street expectations. Shares also should get a boost from a $1 billion repurchase plan starting this year. Not to mention, it’s hard not to love DD’s diverse line of offerings — products ranging from Tyvek house wrap and Lycra synthetic fabrics to Teflon protective coatings and Pioneer seeds and other agricultural options. (Though, as we said before, DuPont could really use some sort of cyclical boom.)
And then there’s DuPont’s attractive dividend, which currently yields 3.6%, and which could be returning to regular growth — last year, DD hiked its dividend for the first time since the financial crisis. If you want to get into DuPont’s next dividend, you’ll have to act fast — DD goes ex-dividend Feb. 13 for its March 14 payout.
Merck (NYSE:MRK), just like Pfizer (NYSE:PFE) is a Big Pharma play that delivers in a big dividend way.
But, just like Pfizer, it has had its share of hurdles to overcome.
Merck’s $5 billion asthma drug Singulair went off-patent last year, and that was followed up by approvals for numerous pharmaceutical companies to sell generic forms of the drug. MRK also took a dive a couple weeks ago after announced it was delaying its push for the FDA approval of its osteoporosis drug odanacatib. The company also was cautious with its 2013 profit outlook, saying it expects revenue to be in line with 2012.
On the plus side, Merck’s in the midst of an aggressive grab at the Alzheimer’s treatment market with MK-8931, a BACE inhibitor, which it started putting through mid-stage trials in December. It also received FDA approval for an over-the-counter version of Oxytrol, which treats overactive bladders in women.
In its most recent quarter, Merck enjoyed strong sales of the diabetes drug Januvia and cervical cancer vaccine Gardasil, which helped keep Q4 revenue and earnings declines in check. The company reported 83 cents per share on $11.7 billion, beating expectations for 81 cents per share and $11.49 billion, respectively.
Merck’s 2009 buyout of Schering-Plough has kept and will continue to keep product line rolling, and a huge war chest of almost $15 billion in cash and short-term investment will keep powering its dividend — bumped up from 42 cents to 43 cents quarterly late last year for a current yield of more than 4%.
Intel (NASDAQ:INTC) has rocketed up this list in the past year, but not necessarily for the best reasons. While it has increased distributions (most recently, from 21 cents to 23 cents last summer), its yield also soared as a result of its share price dropping 20% in the past year.
But while Intel faces a number of questions about its ability to grow in a post-PC world … it might not necessarily need to grow all that much (if at all) to be useful to long-term investors.
After all, despite being in Big Tech, its dividend is decidedly Big Tobacco, to hear Charles Sizemore talk about it. And so are several aspects of its business. Its industry is in decline, but it still has an enormous share of that market at 16%, trumping the No. 2 and No. 3 players combined. It has a conservative balance sheet. Not to mention, it also has a fantastic valuation of less than 10 times earnings — something you actually can’t say for tobacco stocks right now.
Intel’s not necessarily dead in the water, either. Its place inside Microsoft’s Surface tablet at least gives it some shot of making ripples in the mobile space, and there’s even talk it might become bedfellows with Apple (NASDAQ:AAPL) — be it for iPhone processors, or maybe even as a partner in making a smartwatch.
But even if it is, INTC still yields north of 4%, boasts a decent track record of growth — its dividend has improved 40% in just two years — and has room to grow further as it pays out just 37% of its earnings in dividends.
Of course, if Intel is like a tobacco stock, Verizon (NYSE:VZ) and rival AT&T (NYSE:T) are like utilities.
Verizon is the leading wireless telecom provider in the U.S. by subscriptions and gets 50% of its revenue from wireless subscribers. Plus, it’s also a top-tier high-speed Internet provider — an ever-important role as the country continues to hurtle through the digital revolution. And that absolute necessity for wireless service — and its huge market share amid a dearth of competitors – means a very stable revenue stream that helps fund its big, fat dividend.
It was that fat dividend that helped propel Verizon through most of 2012, as income was all the rage. While VZ’s 7%-plus gains last year don’t sound that grand, it’s icing on the cake for a stock traditionally expected to reward investors on the dividend, not through rip-roaring share appreciation.
A big source of downward pressure for Verizon is that the country is more or less at wireless saturation, meaning VZ is in a hotly contested battle to both retain its current customers and wrest contracts from its competitors. And of course, even gaining those subscribers can result in a big hit thanks to big subsidies on smartphones, which happened to Verizon in Q4. Thanks to huge iPhone sales, VZ recorded profits of just 45 cents per share that came in a nickel short of estimates.
Still, that’s because 2.1 million monthly contract users signed on, which is a long-term good for VZ. Plus, the company also has its FiOS TV business, as well Redbox Instant, a streaming video service it just launched with its partner, Coinstar (NASDAQ:CSTR).
Meanwhile, the headliner act — its dividend — has grown 20% in five years and yields well north of 4%.
At this point, we might as well just etch AT&T’s (NYSE:T) name in stone, because it doesn’t look like it’ll move from atop this list anytime soon.
AT&T’s story is the same as Verizon’s (NYSE:VZ): It’s a big ol’ pseudo-utility with a rock-solid balance sheet and stable user base … but one with admittedly limited means of growth in a regulated industry. It’s so big that the Department of Justice knocked down a bid to buy T-Mobile … which then went out and bought up regional carrier MetroPCS (NYSE:PCS).
So for now, it remains No. 2 in American wireless market share, but No. 1 in dividend investors’ hearts. This Dependable Dividend Stock not only has tickled income investors with a substantial 5%-plus dividend, but also has marched out to a nearly 5% share return so far in 2013.
Its fourth-quarter story was similar to Verizon’s. While it gained fewer customers (780,000 contract customers to Verizon’s 2.1 million), it did sell more smartphones, which of course weighed on earnings thanks to heavy subsidies. AT&T still took a $3.8 billion net loss, but adjusted earnings improved 10% to 44 cents per share, which fell just under analyst estimates. Both AT&T and Verizon are benefiting from newer shared-data plans, and like Verizon and FiOS, AT&T is still gaining traction with its U-verse Internet TV service.
Slow and steady wins the race — at least as long as the movement is slowly and steadily ahead. AT&T still is lumbering in the right direction, which means good things for anyone sitting in its stock.