The average dividend yield on S&P 500 stocks has
approximately halved to 2% over time. While significant inflows
to these stocks have caused their yields to drop, the total
returns from dividend stocks still compare favorably with yields
on Treasuries. In other words, when total returns are calculated,
which includes growth in profit, the comparison is favorable. The
trick is to select higher-than-average dividend yielding stocks
and discard those with mediocre performance.
In order to identify popular dividend paying stocks, we went
through the top 10 holdings of three fund managers as of the most
recently available date. Specifically, we checked the top 10
stocks of three dividend-oriented large cap funds, namely
Fidelity Equity Dividend Income Fund
(FEQTX),
T. Rowe Price Equity Income Fund
(PRFDX) and
Vanguard High Dividend Yield Index Fund Investor Shares
(VHDYX).
The results surprised us a bit as they included several names
outside the usual realm of utilities and pharmaceuticals.
Exxon Mobil Corporation
(
XOM
),
Chevron Corporation
(
CVX
),
General Electric Company
(
GE
) and
Johnson & Johnson
(
JNJ
) found a place in the top 10 holdings of all three mutual funds.
In addition,
Wells Fargo & Company
(
WFC
) was included in the top 10 of Fidelity and T. Rowe
Price.
Exxon Mobil Corporation
is well known as the world's largest publicly traded oil company.
Approximately 83% of Exxon's earnings come from its operations
outside the U.S. Exxon Mobil has long been a core holding for
investors seeking a defensive name with continued dividend
growth. We maintain our Neutral recommendation on Exxon Mobil
following its third quarter 2012 report. The stock provided a
dividend yield of 2.65%. It had a forward P/E multiple of 10.9
versus 7.7 average for the industry.
Chevron Corporation
is one of the largest oil and gas companies in the world, based
on proven reserves. Chevron's current oil and gas development
project pipeline is among the best in the industry. We see the
stock performing in line with the broader market and maintain our
Neutral recommendation. Prior to the announcement of its third
quarter results, the stock gave a dividend yield of 3.13%. It had
a forward P/E of 8.9 compared with 8.5 for the
industry.
General Electric Company
is one of the largest and the most diversified technology and
financial service corporations in the world. More than 50% of
GE's revenue is generated from emerging markets. The company
generates huge free cash flow. We maintain our Neutral
recommendation on General Electric. Prior to the announcement of
its third quarter results, the stock provided a dividend yield of
3.01%. The stock had a forward P/E of 14.5 versus 16.1 for the
industry.
Johnson & Johnson
's worldwide business is segregated into three segments:
Consumer, Pharmaceutical, and Medical Devices & Diagnostics.
For the full year 2011, these segments contributed 23%, 37% and
40% respectively to the company's revenue. Johnson & Johnson
recently struck several deals which should boost the company's
top line. There are many candidates in final stages of
development which hold strong potential. Emerging markets
recorded 13% growth in 2011. Based on third quarter results, we
maintain our Neutral rating on the stock. The stock recently had
a dividend yield of 3.44%. Johnson & Johnson had a forward
P/E of 13.9 compared with 14.2 for the
industry.
Wells Fargo & Company
is one of the largest financial services companies in the U.S.
(in terms of assets) with $1.3 trillion in assets and over $928
billion in deposits. The company provides banking, insurance,
trust and investments, mortgage banking, investment banking,
retail banking, brokerage services and consumer and commercial
finance. Higher non-interest income along with cost control
measures acted as positives for the latest quarter. After
reviewing the third quarter results, we maintain our Neutral
recommendation on the shares. The stock provided a dividend yield
of 2.57%. The stock had a forward P/E of 10.3 versus 12.1 for the
industry.
Barring Exxon Mobil and Chevron Corporation which are more
expensive on a forward P/E basis, the other three widely held
dividend stocks are cheaper than the industry average. This
suggests that the timing may still be favorable for taking long
positions on select large cap dividend paying stocks.
CHEVRON CORP (CVX): Free Stock Analysis
Report
GENL ELECTRIC (GE): Free Stock Analysis
Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis
Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
EXXON MOBIL CRP (XOM): Free Stock Analysis
Report
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