3 Examples of How Investor Fear Is Creating a Dividend Investor's Dream

All things being equal, this year's market has treated investors fairly well. Between Jan. 1 and the end of last week, the S&P 500 had a 6.7% return including dividends, and we still have five months to go.

Apparently, however, investors aren't looking at things that way. Instead, many are looking at the crisis in Europe and wondering when it will ever end. Last week, the American Association of Individual Investors released its sentiment survey, showing that just 22% of investors are bullish on the stock market over the next six months. That's the lowest the survey has gone in two years.

But instead of putting your head in the sand and stuffing your money under your mattress, now should be the time when you're looking for quality dividend companies to invest in. The crisis in Europe has created a lot of uncertainty, and some high-quality companies are trading for cheap. Now is your chance to swoop in and buy shares.

Here are three companies that are ripe for the picking right now, and a look at their dividends. Below, I'll explain why each is a good choice for your portfolio, and at the end, I'll offer access to a special free report on three Dow dividends you need in your portfolio.

Company

Yield

Payout Ratio

Walgreen (NYSE: WAG  ) 3.2% 31%
Molson Coors Brewing (NYSE: TAP  ) 3.1% 35%
Intel (Nasdaq: INTC  ) 3.3% 36%

Source: Fool.com.

In each case, the company's low payout ratio means that less than 40% of the company's earnings are being used to pay investors. Should tough times arrive, the company will have the reserves to keep paying the dividend; if, on the other hand, the economy improves, each company could drastically increase its dividend.

Recession resistant companies
Molson Coors, maker of the Coors beer brands and, through a joint venture, various Miller Brewing products, is a perfect example of a recession-resistant company.

As it is, 89% of Coors' sales come from the United States and Canada, where revenues grew by 3% and 2.2%, respectively, last quarter. The only segment that slowed was the United Kingdom. Given the tough economic situation there, that's not too surprising.

Though that means the company could take a hit if the North American economy refuses to improve, it could also offer an opportunity for Coors. Over the past few years, microbrewers like Boston Beer's Sam Adams have been taking market share from the industry's larger companies.

Part of this is a cultural shift, but part is also because people are simply willing to spend on the more expensive micro-brews. If things tighten up, look for people to downshift back to old-time favorites like Coors and Miller Lite.

Meeting all of our prescription needs
Walgreen has over 7,900 locations in America. Though it has varied product offerings, none is more important than prescription medications, which accounted for 62% of all sales last quarter.

That helps explain why the company fell on such tough times lately when it got into a dispute with Express Scripts (Nasdaq: ESRX  ) and lost a large base of its customers. As of last week, however, a deal had been reached between the two companies, and Walgreen saw its stock rise 12% on the news.

Though fellow Fool Austin Smith thinks the company is a sell based on its recent missteps, I beg to differ. As a former CVS patron who switched over Walgreen based on the terrible service I routinely experienced at multiple CVS locations across the country, I think Walgreen has a chance to right its ship.

Before last week's bounce, the company hadn't traded for such a low P/E since the Great Recession. Today the stock's P/E is significantly lower than CVS'. I see the added potential for a boost should rival Rite Aid (NYSE: RAD  ) , which hasn't turned a profit since 2007, go out of business.

The technology sector's most steady producer
As one of the grand ol' companies of the technology sector, Intel has been paying a dividend for almost 20 years. Today's 3.3% yield and P/E ratio of under 11 are about as tempting a deal as an income investor can hope for in this industry.

There are, however, several things to keep your eye on with Intel. It remains to be seen if the company will establish a dominant position in the tablet market, and slowed demand for PCs in Brazil and China could also hurt the company. But at today's prices, it seems as if those concerns are already baked into the stock.

These are just three of many dividend-paying companies that I believe are selling for cheap today. If you'd like a few more ideas, I suggest you check out our special free report: 3 Dow Stocks Dividend Investors Need. Inside, you'll get the names and tickers of three companies our analysts think will clobber the market over the coming years. Get your copy of the report today, absolutely free!

Fool contributor Brian Stoffel does not own shares of any company mentioned. You can follow him on Twitter, where he goes by TMFStoffel. The Motley Fool owns shares of Express Scripts and Intel. Motley Fool newsletter services have recommended buying shares of Intel, Molson Coors Brewing, and Express Scripts. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 28, 2012, at 5:25 PM, FM5 wrote:

    Rad is headed for a major pop to the up side

  • Report this Comment On July 30, 2012, at 7:01 PM, CTadvocate wrote:

    So, why do you feel RAD will POP? All I have seen is disappointment. It has done very little to improve it's position.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1954897, ~/Articles/ArticleHandler.aspx, 10/1/2014 6:20:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement