Stock markets around the world experienced their deepest plunge in more than a year this week, fears grew that Europe's debt crisis could spread around the world and undermine the global economic recovery, particularly in the U.S. After Thursday’s more than 3% decline in the S&P 500, the index is now showing losses for 2010. The S&P 500 is down almost 12 percent from its closing high for the year.
The fear around the globe at the moment is palatable. Fears of contagion of the Greek debt crisis and the fallibility of the economic recovery in America have seen stocks slide over the past three weeks. The selling pressure has been global, with markets in Europe, America and Asia all down (interestingly, markets in Africa remain on the rise).
To the prudent investor, rapid sell-offs by the market based on fear are an excellent hunting ground for investments. Investors looking for dividend income can in theory buy companies of the same quality, yielding safe and sustainable dividends, at lower prices. “Buy when there is blood in the streets”, said Baron Rothschild.
A quick scan of the markets after such a rapid sell-off has produced some enticing dividend names. I used the filter feature in my brokerage account to find companies with market capitalizations greater than $25 billion, which were profitable in 2009, that trade with a PE ratio between 0 and 20, and have a price to cash flow between 0 and 20. The companies must also have a dividend yield greater than 4%. These search parameters are the first step to ensuring I find companies that are not losing money, paying out dividends, and are of sufficient size to withstand large drops in their share prices. I also only selected companies that pay quarterly dividends. Given the fragility of the economy this is prudent.
Top of the list is Spanish banking giant Banco Santander (STD). The $85 billion company is on a PE of 8 and a dividend yield of 11.23%. That’s almost ten times what some savings accounts are paying. The stock price is down some 21% over the past four weeks. Of course Santander is exposed to Spain, part of the Euro troubles, but a Wall Street Journal report says, “Despite an ongoing recession at home, Spain's two biggest banks are expected to report steady earnings this week, allowing Banco Santander (STD) to continue to strengthen their balance sheet”. Santander is the fourth largest bank in the world by profits and eighth by stock market capitalization. In 2009, its net ordinary profits were over EUR 8.9 billion, 1% more than the previous year, and it distributed more than EUR 4.9 billion in dividends to shareholders. The company has also been holding talks about expanding in the U.S., most recently with M&T Bank (MTB).
Another name that has been hammered is Philip Morris International (PM), which is down over 11% over the past four weeks. The company is the leading international tobacco company, with products sold in approximately 160 countries. In 2009, the business commanded an estimated 15.4 percent share of the international cigarette market outside of the U.S., or 26.0 percent excluding China and the U.S. The current dividend yield on the stock is 5.21%, and it’s trading on a PE of 13 and a price to cash flow of 11.
If you believe that international cigarette sales prices are going to continue their upwards trajectory, then Philip Morris (PM) at a sell-off price is probably a decent idea.
The third name I’m going to delve into is Royal Dutch Shell (RDS.A). Shell is a global group of energy and petrochemicals companies with around 101,000 employees in more than 90 countries and territories, and is worth over $160 billion. In 2009, the company made $12 billion in profits. The PE ratio is just under 12, and the price to cash flow is an undemanding 5.7 times. The BP oil spill has really knocked all oil companies which fear increased regulation and liability. Even though earnings were down 50% in 2009, the dividend rose 5%. Over the last five years, Shell (RDS.A) has managed to raise its dividend by 10% compounded annually. Going forward, I expect the dividend to continue to rise over the long-term, generating income for the dividend-seeking investor.
Other interesting names that came up in my search and are worth a look include Altria Group (MO), The Southern Company (SO), Canadian Imperial Bank of Commerce (CM), Kimberly-Clark (KMB), Unilever (UN), and of course, British Petroleum (BP).
Always bear in mind that you should do your own homework before investing, and spend considerable time deciding which companies are best for your particular needs.
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