Friday, March 6, 2009

Digging for Dividends

Written by: Andrew Giovinazzi

While the market falls to multi-year lows (not today though!), and the demand for Treasuries is out of sight, the contrarian in me wants to find an alternative. I want to find companies that pay good dividends and have the solid cash flow to keep paying them. I want better than the 30 year yield on Treasury Bonds and stocks that are on or near their 12-month lows.

Commodities and affiliated industries fit the bill right now. With oil and most commodities in the basement (except gold) it is worth looking at this group in detail. I will sort the market for stocks that fit this description and rearrange the landscape for my custom metric "Solid Dividends".

My metric focuses on steady history of dividend payouts, EPS growth and strong cash flow coverage. I run my metric across commodity stocks - and there are quite a few standouts (in blue). The next step is to sort by stocks closest to their 12-month lows which in our example are closest to the left hand edge of each sector. Most of my top picks happen to be trading close to their 12-month lows even though only 2 of the 6 metrics are price related (Dividend Yield, 5 year Avg and Dividend Yield).

By looking at the Dow Jones News History, I found that these companies h ave either recently raised or reaffirmed their dividend or bought back shares. Simple but nice confirmations and you can get them on or near their lows.

MRO - Marathon Oil Corp.
CVX - Chevron Corp.
CRS - Carpenter Technology Corp.
CRR - CARBO Ceramics Inc.
RPC - RPC Inc.