The 5 Highest Dividend Paying Stocks In The Healthcare Sector

Posted on April 29, 2011

By Robert Hauver

Healthcare stocks spent a good share of 2010 in the red, largely due to concerns over the healthcare legislation passed last year. However, that sentiment seems to have changed in 2011. Take a look at the 2011 sector gains in this table:

SECTORS-4-29-11

We screened for the top Healthcare dividend paying stocks with good ROE and low short interest, and came up with these 5 stocks:

AZN-PMD-DIV

In terms of market cap, it’s a mixed bag, ranging from micro caps Psychemedics and Daxor, to large cap Pharma firms Astra Zeneca and Glaxo Smith Kline.

Daxor has the highest dividend yield, but has decreased its dividend payouts over the past 3 years, from $1.50 to $1.35 to $1.00. Also, their labs show operating losses, and the firm earns profits via sales of investments.

Shamir, which manufactures, and markets progressive lenses to sell to the ophthalmic market, has paid annual year-end dividends over the past 2 years, paying out $.809/share in 2010.

Astra Zeneca has semi-annual ex-dividend dates in Feb. and August, with the majority of its dividend paid out in the earlier payment, while GlaxoSmithKline pays quarterly dividends. GSK’s last dividend was $.615/share, and their next ex- dividend date should be approx. May 5th.

PMD pays $.12/share quarterly dividends, and their next ex-dividend date should be approx. June 3rd. AZN, GSK, and PMD are all listed in the Health section of our High Dividend Stocks By Sector tables.

Financial & Performance Metrics:

AZN-PMD-ROE

With the exception of Daxor, all of these stocks have pretty good ROE and margin figures. Shamir has lagged the group in share performance in 2011.

Valuations:

AZN-PMD-PEG

In addition to having the lowest Next Year PEG ratio, .90, PMD clearly has the best growth figures, past, present and future, although there aren’t any Next Year EPS estimates for SHMR and DXR. SHMR has a fairly low 5-year PEG of 1.05.

Psychemedics was established in 1987 to provide testing for drugs of abuse using hair analysis and has been successfully operating for over 20 years. Psychemedics has obtained FDA clearance on all drug categories and is the only lab to have clearance not limited to head hair (including head and body hair clearances). (Source: PMD website)

Only AZN and GSK both have options available, but only AZN has worthwhile options yields, which you can find more info on in our Covered Calls Table and in our Cash Secured Puts Table.

(Note: There is one other Healthcare stock with a higher dividend yield, PDL BioPharma, but its forward prospects were just dampened by a lab test just released, which found that one of its leading patented drugs, Lucentis, is no more effective than a drug which is a fraction of its cost.)

Disclosure: No positions at this time

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

Top Dow Dividend Stocks – Dividends vs. Options

Posted on April 22, 2011

By Robert Hauver

The Dogs Of The Dow strategy focuses on the Dow dividend paying stocks with the highest dividend yields. Currently, the 3 highest dividend paying stocks in the Dow are AT&T, (T), Verizon, (VZ), and Merck, (MRK). This week we’ll compare current covered calls and cash secured put options to the dividend payouts for these stocks, all of whom are listed in our High Dividend Stocks By Sector tables.

Here’s how these 3 stocks have performed:

T-VZ-MRK-Perf

Like most other Healthcare stocks, Merck has lagged the market over the last year. In 2011 it has also lagged the Healthcare sector, which is up nearly 10%. AT&T and Verizon have both surged over the past year, partially due to the smartphone revolution. AT&T benefited greatly from its exclusive sales arrangement with Apple, (AAPL), for selling the IPhone, an exclusivity which was lost, when Apple also granted Verizon selling rights in 2011.

Selected Financial Metrics:

T-VZ-MRK-ROE

AT&T is the clear winner in terms of ROE. The 2 Telecoms also have much higher operating margins than MRK.

Valuations:

T-VZ-MRK-VALUE

Again, AT&T has outperformed these other 2 firms, in past EPS and present EPS growth, in addition to having the lowest Price/Book, and PEG ratio, which, at 1.63, isn’t that attractive. However, its PEG for next year, at 1.31, is closer to being undervalued. Although all 3 stocks are currently far below their values on a Discounted Future Earnings basis, Merck is sporting a very high PEG ratio for the next year, thanks to its stratospheric current P/E.

Covered Calls vs. Dividends:

T-VZ-MRK-CALLS

Selling 6-month covered call options is one way you can increase your income on these stocks. Note how the call premiums are all higher than the dividends paid out during this term. You’ll find more details on these and other covered calls in our Covered Calls Table.

Cash Secured Puts:

T-VZ-MRK-PUTS

These cash secured puts will give you an entry point/break-even even further below those of the covered calls. Our Cash Secured Puts Table has more details on these and other put options trades.

Disclosure: Author is long shares of AT&T, and short puts of AAPL.

Disclaimer: This article is written for informational purposes only and is not intended as investing advice.

Chasing High Dividends In The Basic Materials Sector

Posted on April 15, 2011

By Robert Hauver

If you’re looking for Basic Materials stocks paying high dividends, join the crowd. Most Basic Materials stocks paying dividends have had quite a run over the past year, as it’s been the leading sector in price gains, due to strong demand from emerging nations, and a cheap dollar:

SXL-SectorPerf

The sector is still holding its own in 2011, although it’s been overtaken by the long out-of-favor Health and Conglomerates sectors, in addition to Industrials. (The Conglomerates sector is dominated by GE, which makes up approx. 47% of it.)

Here’s a look at overall P/E’s, projected EPS and PEG figures, and past EPS & Sales history for all of the sectors:

SXL-SECTOR-PEG

Only Tech outgrew Basic Materials in both Sales growth over the past 5 years, but Basic Materials had only average EPS growth. Looking ahead, the projected 1.27 PEG ratio for Basic Materials stocks is cheaper than the avg. 1.41, but certainly nowhere near the Conglomerates sector’s low of 1.05.

So, are there any solid dividend paying stocks still undervalued in the Basic Materials sector? We found one, Sunoco Logistics, SXL, which is listed in our High Dividend Stocks By Sector Tables, as it currently has a dividend yield of over 5%.

SXL is an MLP that owns and operates refined products and crude oil pipelines and terminal facilities. Its Refined Products Pipeline System has approx. 2,200 miles of refined products pipelines located in the northeast, midwest and southwest US, and equity interests in four refined products joint-venture pipelines. The Terminal Facilities has approx. 10 million shell barrels of refined products terminal capacity and approx. 24 million shell barrels of crude oil terminal capacity (including 21 million shell barrels of capacity on the Gulf Coast of Texas). The Crude Oil Pipeline System consists of approx. 5,400 miles of crude oil pipelines, located principally in Oklahoma and Texas.

Industry Financial Comps:

SXL-ROE

SXL’s payout is in line with industry dividend yields, and its mgt. ratios are quite strong. Although its operating margin looks very slim, SXL, has managed to steadily increase dividends, from $3.03 paid out in 2006, up to $4.52 paid in 2010. Importantly, its Distributable Cash Flow has grown from $103 million to $248 million, and its Dividend Payout Ratio is only 48%. They’ve also had an ongoing capex program, which has greatly expanded their pipeline capacity. In March, they announced the development of Project Mariner West, a pipeline project to deliver Marcellus Shale ethane from MarkWest Liberty’s Houston, Pennsylvania processing and fractionation complex to Sarnia, Ontario, Canada markets.

Valuation Comps:

SXL-PEG

SXL has a low PEG ratio for the next 12 months, especially when compared to its peers. Given their ongoing capex emphasis, the 7% 5-year EPS growth estimate may be low also, which would improve their long term PEG ratio.

There are options available for SXL, but the long term, (Nov.) out of the money Covered Calls are currently only yielding under 2%.

However, the Nov. $85.00 Cash Secured Puts are yielding over 5%, and would give you a break-even of $82.30. You can see details in our Cash Secured Puts Table.

SXL pays quarterly dividends. Their next ex-dividend date should be approx. May 4th.

Disclosure: Author is long shares of GE.

High Dividend Stocks: Will Rising Oil Prices Increase Dividends?

Posted on April 8, 2011

By Robert Hauver

If you’re looking for dividend paying stocks that will benefit from the current rise in oil prices, royalty trusts might interest you. With oil ending the week at over $113/barrel today, it seems logical that Royalty Trusts with exposure to oil, should be able to increase their dividends in the near future. We found 2 of these high dividend stocks that are going ex-dividend next week, on April 13th: Sabine Royalty Trust, (SBR), and BP Prudhoe Bay, (BPT).

BPT-SRB-EXDIV

SBR’s April distribution reflects primarily the oil production for January 2011 and the gas production for December 2010.

Note the significant increases in volume and price for oil for these months:

BPT-SRB-SRB SALESDEC

“ Revenues are only posted and distributed when they are received. Most energy companies normally issue payment of royalties on or about the 25th of every month, and depending on mail delivery, a varying amount of royalties are not received until after the revenue posting on the last business day of the month. The revenues received after that date will be posted within 30 days of receipt.
Due to the timing of the end of the month of March, approximately $601,000 of revenue received will be posted in the following month of April in addition to normal receipts during April. Since the close of business in March and prior to this press release, approximately $1,465,000 in revenue has been received.” (Source: SBR website)

So, in addition to rising prices for oil, SBR will also have additional funds available to distribute from April, due to the timing mentioned above. Looking back at 2008-2010, and comparing historic oil and natural gas prices and revenues for SBR, can give us some insight into where its dividends may be headed:

BPT-SBR-SBR-HIST-Sales

With oil ranging from a low of approx. $83+, all the way up to $113+ so far in 2011, it’s a pretty good bet that SBR will be able to increase their 2011 distributions, even with natgas prices currently languishing around $4.03/mcf.

Here’s SBR’s 2011 monthly Distribution Schedule thus far, which shows a dip in the 1st quarter, but then more than doubles from March to April:

SBR-2011-DIST

Since, like SBR, many oil stocks and natural gas stocks have collections that typically trail sales by approx. 2-3 months, it seems reasonable to assume that near-term dividends should increase from here. given the rise in oil prices over the past few months.

BPT pays quarterly distributions, and their Jan. payout was $2.408, which was nearly 20% higher than their previous dividend payout, which was based on an approx. price of $77/barrel. With April’s dividend at $2.393, they appear to be holding their higher dividend payout pretty steady so far this year, and there’s a good chance that 2011′s higher prices will enable them to push it even higher next quarter, in July.

Disclosure: No positions at this time.

Disclaimer: This article was written for informational purposes only.

Dividend Aristocrats: 3 Highest Dividend Paying Stocks Have Even Higher Options Yields

Posted on April 1, 2011

By Robert Hauver

The Dividend Aristocrats are often mentioned when researching dividend paying stocks, as being some of the most dependable dividend stocks, in terms of steady dividend growth. This week, we looked at the 3 highest dividend paying stocks in this group: Century Link, (CTL), Pitney Bowes, (PBI), and ++Eli Lilly, (LLY), all of whom are listed in our High Dividend Stocks by Sector Tables.

++Correction: LLY was dropped from the Dividend Aristocrats for 2011. Cincinnati Financial, (CINF), currently is the 3rd highest dividend stock in the group.

CTL-PBI-LLY-2011-04-01

All of these firms should be able to maintain their dividend payouts, as they’ve done for the past 25 years – CTL has a dividend payout ratio of 93%, LLY has one of just 45%, and PBI has more than enough cash flow to continue it. *(See below).

CTL and Qwest Communications today completed their merger, creating the nation’s third largest telecommunications company in the United States. The combined company’s increased scale and financial strength will enable it to deliver a broader range of communications services to consumers and small businesses throughout the company’s 37-state service area and to business, wholesale and government customers nationwide via its 190,000 route-mile fiber network. (Source: Century Link website) One of CTL’s main issues is the migration of land-line customers to cellphones, which they hope to combat through their Qwest merger. They also are strong in rural areas, where competition isn’t as fierce.

PBI has negative equity listed on their balance sheet, thus no ROE and debt/equity figures. * PBI has a big load of debt, but, being a cash machine, they’re able to finance it easily. Their financing interest costs actually fell in 2010, vs. 2009, from $97.6 million to $88.3 million. Even after paying these interest charges, they earned $534.6 million pre-tax in 2010. However, their 2010 revenue did shrink to $5.43 billion, vs. $5.57 billion in 2009, and their 2010 EPS also fell, to $1.14, from $2.04 in 2009.

LLY grew their revenues 5.5% in 2010 to $23 billion, from $21.8 billion in 2009, and also grew their EPS by 8%, $4.74 vs. $4.42 in 2009. The company expects total revenue growth will be flat to slightly increasing. The company anticipates that the impact of U.S. health care reform will lower 2011 revenue by $400 million to $500 million. 2011 revenue guidance assumes the company maintains its patent exclusivity for U.S. Strattera sales, and also assumes rapid and severe erosion of global Zyprexa sales after patent expirations in major markets, including the U.S. starting in October 2011, and the continued severe erosion of U.S. Gemzar sales. The company expects these reductions in revenue to be offset by sales growth of Alimta, Cialis, Cymbalta, Effient, Humalog and animal health products. Excluding the anticipated decline in Zyprexa and Gemzar sales outside of Japan, and the incremental impact of U.S. health care reform, the company would expect 2011 revenue to grow in the mid- to high-single digits. (Source: Lilly website)

PBI and LLY delivered positive earnings surprises in Q4 2010:

CTL-PBI-LLY-EARNGS-2011-04-01

Their P/E’s are well below their industry averages, but as you can see, these firms aren’t big earnings growth stories, with PBI and LLY in the midst of organizational streamlining that’ll take awhile to complete. LLY also has the issue of a growing its drug pipeline, in order to fight off patent expirations.

Here’s how the dividends and options compare for these 3 stocks:

Covered Calls:

CTL-LLY-CALLS-2011-04-01

As you can see, the call options for PBI and LLY greatly exceed their dividend amounts for this time period, by over 2 times. There’s also some assigned gains potential for PBI and CTL, which you can see in our Covered Calls Table.

Selling cash secured puts also gives you a much higher payout than these dividends:

CTL-LLY-PUTS-2011-04-01

There are more details on these and other put options trades in our Cash Secured Puts Table.

Concerning share performance, CTL has gained the most in the past year, while PBI has gained more year-to-date:

CTL-LLY-SHAREPERF-2011-04-01

Disclosure: Author is long CTL shares

Disclaimer: This article is written for informational purposes only.