3 high-paying dividend stocks on sale

What's better than a cheap, stable name that also has a generous payout? Not much.

By TheStreet Staff Aug 8, 2013 1:44PM

thestreet logoFinancial Stock Chart © Kick Images, Photodisc, Getty ImagesBy Robert Weinstein

 

Don't you just love dividend-paying stocks? You buy one and like magic they start sending you thank-you notes in the form of dividend payments.

 

Non-dividend stocks never send you thank-you letters. You may receive a letter from a class-action lawyer once in a while trying to shake down the company for a few dollars, but that's usually about it.

 

The only thing better than buying a high-yielding stock is buying a high-yielding stock on sale. The market is a fantastic place to find sales. We have to be extra careful buying stocks on sale, though. There's usually a reason people are selling but if you're willing to wait and be selective, fantastic deals abound.

 

Potash (POT)

Background: Potash Corporation of Saskatchewan, together with its subsidiaries, produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada.

 

I could certainly have fun with this name, especially after writing on TheStreet Why Weed Isn't Legal and May Never Be, but I will stick to the investment thesis.

 

Potash gapped lower the last day of trading in July after a Russian producer ended its distribution contract with Belarus. Belarus is the biggest player in the global potash space, and effectively controlled the market the way De Beers (the good folks who brought us "A diamond is forever") controls the diamond market.

 

Instead of $800 or more per ton for potash, the fertilizer is worth about half that now. Lower prices result in lower profits for Potash.

 

The good news for you is the dust settled and the market fully priced in the price change. Also, that's one less risk hanging over investors' heads that is now effectively removed.

 

Earnings payout percentage: 33%

 

After the sell-off, the yield jumped to 4.7%, bringing it to my attention. I waited until the shares found support, and now it's relatively safe to stick your big toe in the water.

 

The average analyst target price for Potash is $37.93. Don't let a downgrade and/or lower price target announcement alarm you. A $3 or $4 price target reduction should have near zero impact based on the already-discounted shares.

 

The last reported short interest is paltry and without reason to consider it a meaningful influence at only 2% of the average trading float.

potash dividend

potash payout ratio


Barrick Gold (ABX)

Background: Barrick Gold engages in the production and sale of gold and copper. The company has a portfolio of 27 operating mines worldwide. It also holds interests in oil and gas properties located in Canada.

 

Price-to-book: 1.2

Earnings payout percentage: 40%

 

I have a lot of gold stocks popping up on my scanners lately. When an entire industry is declining, "value buys" are everywhere, only they're nowhere. The difference between catching a falling knife and a value buy is how close you come to the bottom when you enter.

 

If you buy too soon you can get stopped out, only to watch the stock recover and reward those who waited for a better deal. Wait too long and you can wind up trying to chase it higher, never a pleasant thing.

 

Barrick probably isn't at the exact bottom here, but in relative terms is worth looking at. I'm not a enormous fan of gold at the current price relative to inflation, but gold needs to fall another 20% before I consider the dividend to be at risk.

 

The average analyst target price for Barrick Gold is $22.68. Unlike most stock picks, I don't suggest pushing for more than the analyst target price. I think the correct play is to hold out for $14.90 a share, and use $19.80 as a profit target. Dividends received while waiting are icing on the cake.

barrack dividend

barrick payout ratio


Altria Group (MO)

Background: Altria manufactures cigarettes, smokeless products and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky, and Marlboro Snus brand names; cigars principally under the Black & Mild brand; and pipe tobacco.

 

I don't enjoy the smell of smoke, but I also don't feel we need all the laws we have either. One thing Big Tobacco has going for it is a low risk of government lawsuits. It turns out smokers don't cost states money after factoring in savings from lower expenses from the lower life expectancy. Cold, I know, but my job isn't to make moral judgments on the companies; rather, my role is to determine the profitability, risks and potential viability of the investment.

 

While Big Tobacco doesn't face as much domestic risk as previously thought of, world-wide risk is a giant unknown. Regulatory and civil risks are offset with changes in nicotine delivery. Electronic cigarettes, cigars and pipes are making inroads and have the potential to halt the decline in customer base.

 

In theory, one could make an argument that electronic smoking products could increase revenue and grow the customer base. That's more optimistic than I suggest you model for, and if it happens it's a bonus.

 

Price-to-bBook: 19.9

Earnings payout percentage: 55%

 

Altria investors are receiving a yield of 5%, and that's not quite enough. Hold out for a sub-$35 price because you probably can get it. An overall market drop alone should get us there. Look to enter around $34.90ish.

 

The average analyst target price for Altria Group is $37.50, and I believe $39 is reasonable within the next 12 months.

 

Almost zero desire by short-sellers to move against this stock. Short interest hardly moves the needle with only 0.9% of the float.

Altria dividend

altria payout ratio

At the time of publication the author had no position in any of the stocks mentioned.

 

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16Comments
Aug 9, 2013 12:40AM
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Author really needs to update his facts on Barrick Gold. It just cut it's dividend from $0.20 per quarter to $0.05 per quarter.

Aug 9, 2013 1:02AM
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Since THESTREETDOTCOM and Jim Cramer advised me not to buy TESLA at $46/share because it was a "boutique" stock it has climbed to almost $160/share. I have no intention of taking any advice from clowns ever again. Go to MARKETWATCHDOTCOM sponsored by the Wall Street Journal for advice and ignore the amateurs. 
Aug 8, 2013 3:07PM
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POTASH

 

"The good news for you is the dust settled and the market fully priced in the price change"

 

May be; but the market hasn't priced in the dividend cut which is sure to come.

Aug 9, 2013 7:57AM
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Only a fool would believe anything is on sale with the DOW in such record territory and we have only begun to solve, if it can be solved, our financial woes. 

Do you really want to be in a market, when every time Bernanke and his cronies sneeze, the Dow plunges?  Think about the next debt ceiling about to be reached in Sept.

If you *must* be in the markets, I agree, buy a good yielding dividend stock and hold your nose.  Don't say you weren't warned, when you get the nosebleed (dividend cut).

Aug 9, 2013 9:39AM
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Why would this article put ABX in. The yield on this is 1.29%. IMHO that is not enough to be looking at if you are a dividend investor. Try looking at VOD @ 5% or INTC at 4.89 or PFE or GE that are both in the low to mid 3"s
Aug 8, 2013 4:23PM
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Kinda wondered why you guys didn't beat up Weinstein from "The Street", like you do his buddy or co-worker Jimmy?

 

Not bad stuff, if you invest. 

Aug 9, 2013 7:01AM
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You've got nothing here. As the $85 billion a month in fiat money is stopped and businesses have to stand on their own efforts, dividends will drop to nothing. Potash is already exposed because there is a dwindling supply of it's output product and Canada is less like to see supplied reach critical level as the global economy fails. The correction in corporate arrogance is an inevitability.
Aug 9, 2013 8:00AM
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"It turns out smokers don't cost states money after factoring in savings from lower expenses from the lower life expectancy."

I'd really like to see that research.  Was it a scientific study?  Was there more than one study?  Is this some guy shooting from the hip?  Or did bunch of doctors get together and just say "well they're dropping like flies and we gotta figure out how to keep 'em alive a little longer so we can keep billing their insurance."
Aug 9, 2013 2:05PM
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Barrick Gold  would be a big mistake right now. not only is gold trending down, many gold miners expanded in the bubble and can not mine at the current price.  this company is losing money right now and has negitive profits. why would anyone tell someone to put money into a company not makeing money is beyond my understanding. how can you sleep at night doing that?
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Great article. I wouldn't count on buying Barrick Gold for the dividend; in fact I think the dividend will be slashed to 0 in the longer term. I would rather own the banks with steady cash flows increasing payouts, consumer products companies like Coach or Procter & Gamble, Pepsi Co, and if you are in to industrials; then 3M comes to mind.

I essentially own most of the S&P 500 dividend aristocrats index for their commitment to increasing dividends over time, the full list is here http://www.2topdividendpayingstocks.com/sp-dividend-aristocrats-2013.html

S&P 500 Dividend Aristocrats is a listing of all companies in the S&P 500 Index that have consistently increased dividends each year for the last 25 years. You will find some of America's largest blue-chip companies in this index including AT&T, Chevron, Coca Cola, Johnson & Johnson, McDonalds, Procter & Gamble, Wal-Mart and Walgreen. For the year 2013, the S&P 500 Dividend Aristocrats Index had 54 companies that were equally weighted and not favored because of their sizes or market capitalization. Each company in the Index is an investment opportunity without regard to its size. In addition, each constituent must have a minimum $3 billion float-adjusted market capitalization to be included in the Index.

S&P 500 Dividend Aristocrats is a listing of all companies in the S&P 500 Index that have consistently increased dividends each year for the last 25 years. You will find some of America's largest blue-chip companies in this index including AT&T, Chevron, Coca Cola, Johnson & Johnson, McDonalds, Procter & Gamble, Wal-Mart and Walgreen. For the year 2013, the S&P 500 Dividend Aristocrats Index had 54 companies that were equally weighted and not favored because of their sizes or market capitalization. Each company in the Index is an investment opportunity without regard to its size. In addition, each constituent must have a minimum $3 billion float-adjusted market capitalization to be included in the Index. - See more at: http://www.2topdividendpayingstocks.com/sp-dividend-aristocrats-2013.html#sthash.8KLR5q6K.dpuf
S&P 500 Dividend Aristocrats is a listing of all companies in the S&P 500 Index that have consistently increased dividends each year for the last 25 years. You will find some of America's largest blue-chip companies in this index including AT&T, Chevron, Coca Cola, Johnson & Johnson, McDonalds, Procter & Gamble, Wal-Mart and Walgreen. For the year 2013, the S&P 500 Dividend Aristocrats Index had 54 companies that were equally weighted and not favored because of their sizes or market capitalization. Each company in the Index is an investment opportunity without regard to its size. In addition, each constituent must have a minimum $3 billion float-adjusted market capitalization to be included in the Index. - See more at: http://www.2topdividendpayingstocks.com/sp-dividend-aristocrats-2013.html#sthash.8KLR5q6K.dpu
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