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Dow Theory: 3 Buys For Yield

 March 15, 2013 10:40 AM

by Richard Moroney, editor Dow Theory Forecasts

Investors who appreciate quality stocks with "good" yields have plenty of options. In January and February, 570 stocks raised, resumed, or initiated dividends, the highest during that two-month period in at least a decade.

Below, we review three stocks that are above-average yielders that also top their sector average yield and have a history of growing the payout. Here's a look at Aflac (AFL), Exxon Mobil (XOM) and Intel (INTC).

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Insurer Aflac has raised its dividend in each of the last 30 years. The payout has grown at an annualized rate of 16% over the last 25 years.

While the dividend rose less than 10% in each of the last three calendar years, it rose at least 12% in each of the previous 22 years. It would not surprise us if Aflac returned to double-digit dividend growth, now that concerns over its exposure to European bonds have lost much of their bite.

Since Aflac fell short of December-quarter sales targets, the shares have dipped 5%. Japan accounts for about 80% of the company's profits, and the yen is losing ground relative to the U.S. dollar. As of March 6, $1 would buy 93 yen, up from 86 at the start of the year and 78 at the end of October.

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Aflac projects per-share-profit growth of 4% to 7% for 2013 at constant currency. But the 2013 profit consensus has fallen 8% over the last two months and now projects a 3% decline, which seems overly conservative.

At eight times trailing earnings, Aflac trades at a 13% discount to the median life and health insurer in the S&P 1500 Index and 30% below its own three-year average. Aflac is a Buy and a Long-Term Buy.

Exxon Mobil

Last April, Exxon Mobil raised its dividend 21%, the biggest jump in 25 years. Given the oil giant's history of 30 consecutive annual dividend hikes, we expect another boost next month, though perhaps not quite as large as last year's.

Exxon yields 2.5%, nearly double the average of 1.3% for S&P 1500 energy stocks. In 2012, Exxon generated $56.17 billion in operating cash flow. It spent more than $10 billion on dividends, one of only two U.S. companies to top that threshold.

The oil giant also spent nearly $21 billion buying back its own shares last year, reducing its share count by 5%. That $31 billion shared with stockholders in 2012 is 38% more than the second-most-generous U.S. company.

The consensus projects per-share-profit growth of 7% to $7.97 this year despite an 8% decline in revenue. Analyst revenue estimates vary widely (low of $363 billion and high of $487 billion), most likely reflecting differing opinions about the price of oil and natural gas.

Commodity-price fluctuations can wreak havoc on energy producers' sales and profits from quarter to quarter. However, Exxon's solid, steady dividend provides investors with an element of stability in the face of inherently volatile results. Exxon is a Buy and a Long-Term Buy.


Semiconductor giant Intel has become a Wall Street whipping boy, punished for its heavy dependence on the sagging personal- computer market.

Because of its lack of success generating growth from the high-flying smartphone and tablet markets, Intel's name is often mentioned when rivals up and down the supply chain run afoul of weak PC demand. But while some pessimism is justified, Intel's punishment seems disproportionate to its crime.

The shares have fallen 12% over the last six months and now trade at less than 10 times trailing earnings, less than half of the median for its industry and 11% below its three-year average. Intel also trades at a discount of at least 20% to its three-year average for price/sales and price/cash flow.

Intel yields 4.2%, roughly triple the average technology stock. Lacking an obvious catalyst, we're not confident Intel will post strong share-price gains over the next year. But the 4.2% yield represents solid compensation for investors willing to exercise patience with this Long-Term Buy.



3/15/2013 11:52:31 AM
Retired XOM by Gerry Oswitt
How much did the $21billion in stock buy backs raise the price of XOM stock?? The answer is "zero"! T-Rex cannot even bring this stock back to his $95 high when he took over. He wasted another $43 billion on XTO which has produced? NOTHING!! Fire this incompetent as his peers all say he is just "DUMB, as he was a guitar playing, pot smoking hippie in college. Probably a Texas college? Gerry Oswitt -38 year XOM employee
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