2 Dow Dividend Stocks With P/E’s At 5-Year Lows And High Option Yields

By Robert Hauver

If you’re wondering about which Dow dividend stocks are the best stocks to buy now for dependable dividends, consider this:  Exxon and AT&T are both very near their 5-year P/E lows. In addition, AT&T is cheap on a P/Book basis, whereas Exxon has traditionally commanded higher multiples than most its oil industry peers:


Dividends: XOM upped its quarterly dividends in Q2 2011 to $.47/share from $.44, while T raised its dividend to $.43 in Q1 2011, from $.42. AT&T’s 5-year dividend growth rate exceeds its peers, and Exxon’s is slightly under its peers. However, Exxon has also traditionally split its shareholder “paybacks” between dividends and share buybacks.

You’ll find T listed in the Telecoms section of our High Dividend Stocks By Sector Tables.


High Options Yields: The call and put options listed below for these Dow dividend stocks  expire in Jan. 2012 , and greatly exceed the quarterly dividends over this 4-month term.

In fact, Exxon’s call options pay almost 9 times what the dividends pay.

There are further details on this and several other high yielding covered call trades in our Covered Calls Table.

Covered Calls:


Cash Secured Puts: AT&T’s Jan. 2012 $27.50 puts achieve a break-even price that’s nearly 4% below its 52-week low. As with the call options, the put options have much higher payouts over this term than the quarterly dividend.


You’ll find more details on this and many other high yield cash secured put trades in our Cash Secured Puts Table.

EPS Growth: Both T and XOM enjoyed very good earnings in their most recent fiscal years. AT&T’s iPhone deal with Apple was very positive for earnings, and Exxon benefited from strong crude prices.  T’s 12-month PEG is lower than XOM’s, thanks to very low growth forecasts for XOM.  Of course, nobody really knows if global demand and prices will rise enough during the near term for XOM to achieve stronger growth next fiscal year or not.  However, it’s a reasonably logical long term bet that Exxon will benefit from long term crude demand, and will also benefit also from natural gas demand, with its purchase of XTO Energy, the biggest natural gas firm in N. America. In fact, Exxon execs are predicting that natural gas will replace coal as the 2nd most used energy source by 2030. One other thing to note is that crude futures prices have been tending to rise with positive economic data, so, if the US economy continues to hold up, Exxon should probably benefit.

AT&T’s growth forecasts are somewhat tempered by the loss of its iPhone exclusivity, and also from increased competition and market saturation. However, AT&T may have an advantage with the Apple’s new iPhone lineup, since AT&T’s network can handle the faster speeds of the new phone. Apple will also give AT&T an exclusive for the 3GS iPhone that will be given away to customers who sign up for a 2-year contract. One uncertainty obscuring AT&T’s future is whether or not the T-Mobile deal will be approved.  The US Justice Dept. currently has a suit  to block the deal, due to fears of higher prices for consumers.


Financials: AT&T’s financial ratios are above industry avgs., excepting its operating margin, which is below its peers”s 16.04% avg.  Exxon’s ROE and ROI are better than its peers, but it falls below industry avgs. in the remaining categories.


Share Performance (through 10/6/11): XOM fell more than T in this past trading quarter’s correction, due to being in the Basic Materials sector, which was the 3rd worst performing sector during this time. However, both stocks have outperformed the S&P over the past month, year, and year-to-date:


Disclosure: Author is long shares of XOM and T.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

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