Dividend Bargain Screen Revisited

Debate continues on whether or not dividend-paying stocks are in bubble territory. Stock valuations have certainly climbed. The S&P 500 (INDEX: ^GSPC  ) price-to-earnings ratio has expanded from just less than 14 to a little more than 16 over the past year. To see if that climb has pushed dividend stock prices to the moon, let's look for some deals.

Back in July, I ran a screen and found a few dividend bargains. Rerunning the screen should shed some light on dividend stock value. Since two of the screen parameters were based on the S&P 500, and those have changed since July, CAPS screener was run with the July settings and then again with the current values for the S&P 500 as listed below:

  • P/E ratio positive and less than 15.4 (July value, 16.3 currently).
  • Dividend yield greater than 2.3% (July value, 2.2% currently).
  • Long-term debt-to-equity ratio less than one to eliminate companies with high debt levels.
  • Revenue and earnings growth each greater than 3% over the past three years.
  • Market capitalization greater than $5 billion.
  • Rated by our CAPS community at four or five stars (out of five).

With the setting from July, the screen kicked out 44 matches, compared with 50 earlier. With the parameters set to the current S&P 500 values, 54 matches popped up. The results by sector are shown below.

Sector

Matches With Settings From July

Matches With Current Market P/E and Yield

Basic materials

15

18

Technology

9

10

Financial

7

7

Industrial goods

6

7

Services

2

3

Consumer goods

2

5

Healthcare

1

2

Conglomerates

1

1

Utilities

1

1

Total

44

54

The company with the highest dividend yield from each sector is listed below. Results are from the screen with current valuations.

Company Name

Long-Term Debt-to-Equity Ratio

Dividend Yield

PE (TTM)

Sector

CAPS Rating (out of five)

Cliffs Natural Resources (NYSE: CLF  )

0.61

6.4%

3.9

Basic materials

****

3M

0.34

2.5%

15.2

Conglomerates

*****

Lorillard

0

5.4%

14.2

Consumer goods

*****

Bank of Montreal

0.16

5%

10.3

Financial

****

Sanofi

0.18

3.8%

15.8

Healthcare

*****

ABB

0.45

3.7%

14.8

Industrial goods

*****

Genuine Parts Company

0.17

3.3%

15.8

Services

****

Vodafone

0.37

7%

13

Technology

*****

Companhia Energetica Minas Gerais

0.34

5.2%

8

Utilities

****

Source: CAPS Screener results. TTM = trailing 12 months.

Screen results should always be considered a start for further research, not outright buy recommendations. For example, Cliffs looks cheap, but the company has missed earnings estimates for each of the last three quarters, and analysts have been cutting estimates. It might be a great investment, but prospective buyers need to have some confidence that things are about to turn around before diving in.

This drill shows that dividend payers have gotten more expensive in absolute terms over the past few months. However, today's market offers a longer value menu compared to the broad market. And there's a lot of international flavor on that menu.

Fool contributor Russ Krull does not have a position in any company mentioned. You can follow his CAPS picks here. Motley Fool newsletter services have recommended buying shares of Vodafone Group and 3M. Motley Fool newsletter services have recommended creating a diagonal call position in 3M. 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.


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