5 Dividend Stocks Sitting Out the Rally

The market is off to a quick start this year.

We're just a month into 2013, and already the S&P 500 is up more than 5%. Hundreds of stocks are testing all-time highs. The bad news for dividend seekers in this kind of an environment is that solid yields are even harder to come by.

But a few dividend stocks have been left out of this year's rally, and still yield better than 2%. Here's a look at some high-yielders that have gotten cheaper relative to the market in 2013.

Company

Yield

Payout Ratio

YTD Return

Coach (NYSE: COH  )

2.3%

31%

(8%)

Time Warner Cable (NYSE: TWC  )

2.9%

31%

(8%)

Dow Chemical (NYSE: DOW  )

3.9%

87%

(1%)

Aflac (NYSE: AFL  )

2.6%

22%

0%

Corning (NYSE: GLW  )

3%

27%

(5%)

Source: Yahoo! Finance.

Starting at the top, luxury handbag and accessory producer Coach reported surprisingly weak sales over the holiday quarter. Yes, the company's stellar brand helped it keep up growth overseas. And that was particularly true in China, where sales rose by 40%. But a slowdown in the U.S. market has investors worried that those sales can't grow fast enough to make up for soft growth domestically. CEO Lew Frankfort says that the dip stateside was due to "near-term challenges" like Hurricane Sandy and consumer worries over the fiscal cliff. Investors who agree have a chance to snap up shares at less than 15 times earnings, cheaper than they've traded for years.

Moving down the list, Time Warner Cable just booked 9% revenue growth for last quarter and a 6% rise in operating income. But continued losses in the company's cable video division helped slow residential services growth to just 1.1%. On top of that, programming costs are rising fast, especially for access to expensive sports broadcasts. Unfortunately, these trends show no signs of reversing. And it looks like cable subscribers will increasingly cut the cord as Time Warner tries to keep passing along all of those extra costs.

Dow Chemical is the biggest yielder in this group, but also lists a dangerously high payout ratio that's near 100%. But keep in mind that the ratio is inflated by huge restructuring and impairment charges that Dow took in the last year. Stripping that out, the company generated strong cash flows of more than $4 billion last year, more than enough to help management fund a 34% increase in the dividend payout. But while its true that Dow's nearly 4% dividend looks safe, business is hardly booming. Revenue fell last quarter by 1%. And a tepid global recovery won't be creating much of a tailwind for Dow in 2013, either.

Next up is Aflac, which boasts one of the lowest payout ratios around. The company distributed $464 million to shareholders through the first nine months of 2012, while booking 2.3 billion in net earnings. But that doesn't mean the insurance giant is being cheap with its investors. Aflac is a Dividend Aristocrat, and the company has raised its payout for 30 consecutive years. It is slated to report fourth-quarter earnings next week, when analysts think it will show a slight profit increase on a 9% boost in sales. The weaker yen might crimp results this quarter, but investors can be confident that Aflac will stay conservative with its payout ratio while aiming to keep boosting that dividend.

And finally we have Corning, the specialty glass and ceramics giant. Corning just this week reported a 14% rise in sales and its first quarterly improvement in earnings since 2010. Key to that profit boost was a turnaround in its display technologies division, which was hurt by sales declines last year thanks to tanking flat-screen display prices. That segment finally managed to kick in a slight increase of 3% last quarter. Corning also celebrated the fact that its Gorilla Glass product, which is used in smartphones and other consumer devices, exceeded $1 billion for the year. The company just introduced its third version of the scratch-resistant glass to the Consumer Electronics Show. If that product performs well, and if the display business holds up, shares could be a bargain at just 10 times trailing earnings -- with a solid 3% yield to boot.

Foolish bottom line
The market's quick rise has made good yields tougher to find this year. But that doesn't mean dividend seekers should settle for avoiding the market altogether. There are still plenty of strong candidates for income-producing investments around.

With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand-new premium research report on Corning, our analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy, and receive a full year of updates as key events unfold.


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