One of the biggest arguments against purchasing quality dividend stocks is that they have been “dead money” over the past decade. Some investors who read my site have mentioned that companies like Intel (INTC), Medtronic (MDT), Coca Cola (KO), Wal-Mart (WMT) and Abbott (ABT) come to mind due to the fact that they delivered very little in total returns over the past decade. Once again, investors are comparing apples to oranges. In general, these four stocks were much overvalued in the year 2000. Today, they are attractively priced.
Intel Corporation (INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. While the company earned $1.51/share in 2000, when the stock price ended the year at $30.06/share, for a P/E of 20, this EPS figure did not take into account the implosion of the tech sector. In fact, one of the reasons why I haven’t ventured in to the stock was that Intel did not exceed its year 2000 EPS until 2010. In 2001, EPS collapsed to just $0.19/share. Sometimes measures like P/E ratios should be taken with a grain of salt when dealing with cyclical companies in the technology, automotive and materials sectors for example. The stock has a P/E of 11.70, and yields 3% today however, which makes it a buy when it reaches a dividend achiever status. (analysis)
The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. In 2000, the company earned $0.88/share, while the stock closed the year at $60.94. The P/E ratio was rich at 69 times earnings, while the annual dividend of 68 cent/share delivered a yield of 1.10%. Today Coca Cola trades at 19.30 times earnings and yields 2.90%. (analysis)
Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. In 2000, the company earned $0.91/share, while the stock closed the year at $60.38. The P/E ratio was rich at 66 times earnings, while the annual dividend of 20 cents/share delivered a yield of 0.30%. Today, Medtronic sells at 12.20 times earnings and yields 2.50% (analysis)
Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. In 2000, the company earned $1.25/share, while the stock closed the year at $53.13. The P/E ratio was rich at 42 times earnings, while the annual dividend of 24 cent/share delivered a yield of 0.50%. These days, the world’s largest retailer trades at 13.40 times earnings and yields 2.60% (analysis)
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. In 2000, the company earned $1.78/share, while the stock closed the year at $48.44. The P/E ratio was rich at 27 times earnings, while the annual dividend of 76 cent/share delivered a yield of 1.60%. Currently, he company trades at 15.10 times earnings and yields 3.40%. (analysis)
Full Disclosure: Long KO, WMT, MDT, ABT