A pair of hot dividend-paying stocks to buy now

Such shares generally outperform non-paying shares. Here are 2 names that should appreciate -- and pay you to own them while they do.

By TheStreet Staff Sep 17, 2013 10:56AM

thestreet logoMoney grow (© Dynamic Graphics/Creatas Images/Jupiterimages)By Robert Weinstein

 

Owning stocks that pay super-sized dividends when the market is trending higher is a powerful way to get free portfolio insurance in case the market takes a breather.


Regardless of your stocks gaining value, you get paid to own them. Receive enough dividends and your stocks are essentially free cash-disbursing ATMs once a quarter.


With that in mind, if you can find stocks that pay massive dividends and are bullish based on their chart pattern, you have a recipe to stack the odds in your favor. We don't know what will happen next, albeit in the same way the Las Vegas Sands (LVS) prospers we do our best to gain an edge and let the law of averages work in our favor.


After watching the Green Bay Packers put 38 points on the board and a win Sunday, I researched and found stocks that are not only notable dividend payers, but promising buys right now. Here are what I found. 


Pfizer (PFE)

Background: Pfizer, a biopharmaceutical company, engages in the discovery, development, manufacture, and sale of medicines for people and animals worldwide.


Price to book: 2.4

Earnings payout percentage: 25%


Shareholders receive 96 cents annually in dividend payments. That places the yield about 3.3%; in relation to a shrinking payout percentage, it is one of the best yields you can find on Wall Street.

pfe dividend yield

Pfizer has plenty of competitors in the space. One that particularly stands out is Merck (MRK) right now. I would wait for a buying dip in price to enter, for example, under $48. Also, while Merck pays a slightly higher dividend yield, the payout percentage is expected to top 50%, even with expected earnings to grow to $3.68.


Pfizer and Merck are widely held, and there is a compelling reason for it -- they both deliver to shareholders. Pfizer is my first choice, but Merck deserves an honorable mention, especially for investors that already own Pfizer and want diversification.


Pfizer's shares are up about 14% from a year ago, and the average analyst price target is $31.59. I don't put a tremendous amount of weight on analysts' price targets but it is one more factor to consider.


There's almost zero desire by short-sellers to move against this stock. Short interest hardly moves the needle with only 0.9% of the float. Never underestimate how informative short interest is. If the smartest guys in the room aren't excited about placing a bet the stock is overpriced, it probably isn't. 

pfe payout ratio

Verizon Communications (VZ)

Background: Verizon is the largest providers of wireline and wireless communications in the United States. Verizon is also the world's largest provider of print and on-line directory information.


Price to book: 4

Earnings payout percentage: 63%


Verizon has an eye-popping 4.4% yield, but what most catches my attention is the chart pattern. After a relatively large selloff in price, Verizon is on sale and breaking above the 200-day moving average again. In fact, on Monday, shares opened above the widely followed technical indicator, tested the support at the low and moved up again to close near the open.

vz dividend yield

From a technical analysis point of view, this is what we want to see for the second break above the moving average. I've been highly bullish on Sprint (S) and AT&T (T) with strong results, and now my focus is on gaining this dividend at a price I expect will prove profitable.


For investors who bought a year ago, Verizon has already performed well with a gain of 16%, plus dividends received. Analysts peg the one-year estimated share price at $53.82; however, I believe we may see another dividend hike within that time and a price closer to $55.


Verizon last raised the dividend about a year ago after doing so about two years ago during its November payments.


The last reported short interest is paltry and without reason to consider it a meaningful influence. Only 1.6% of the average trading float is shorted. Not unlike Pfizer, Verizon's small short interest is a green light to jump in the water.


Verizon, AT&T, and Sprint have new competition selling Apple's (AAPL) iPhone now that Apple and Wal-Mart (WMT) have expanded sales into the Wal-Mart stores (Wal-Mart already sold iPhones through Sam's Club), but the carriers make their money on services, not hardware, so the net effect should be minimal and not a material reason to adjust the investment thesis.

vz payout ratio

If you want to know my thoughts on Apple's sales channel expansion, take a look at Apple Can See the Future by Looking at the Past.

 

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

 

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