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Tickers in this Article: CM, LLY, VZ, BAC, WFC, JNJ, PFE, T
Everyone knows how important dividends are to a portfolio's success and no one ever passes up an opportunity to grab some free cash. Unfortunately, since financial markets began diving in earnest last year, dividend cuts became all the rage for members of the S&P 500. Sure, financials were among the most egregious offenders, but the epidemic of dividend reductions or eliminations quickly spread to other industries. In fashion terms, dividend cuts became the new black.

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Deep Dividend Cuts
By November 2008, S&P 500 financials had cut or eliminated dividends 37 times to the tune of $30.8 billion, compared to just 12 cuts totaling $5.1 billion in the five years leading up to 2007. But the carnage wasn't limited to the financials. Companies of all stripes in the S&P 500 slashed $16.6 billion in dividends by the end of February 2009, which was more than the amount reduced in the last quarter of 2008.

With that in mind, we went searching for large stocks with low P/Es, strong cash positions and dividend yields of above 5%. In addition to the dividend yield of 5% or more, our screen sifted through companies with a forward P/E ratio of less than 15, a price to free cash flow ratio of less than 15 and companies with market caps between $10 billion and $200 billion.

The free cash flow metric was used on the basis that companies with strong cash positions are not likely to be dividend reducers. Our screen turned up 12 companies, only two which were based in the U.S., and half of which were financials. Telecom and pharmaceuticals also made appearances. Here are three of the 12 stocks, one from each sector.

Another Canadian Banking Stalwart
Canadian Imperial Bank of Commerce (NYSE: CM) Dividend Yield: 5.5% Forward P/E: 8.95. One might argue that Canadian banks rose to acclaim over the past 18 months as their more conservative lending practices helped them weather the financial maelstrom far better than their American counterparts. Canadian banks also benefit from significant barriers to entry for foreign competitors seeking to enter the Canadian banking market.

Canadian Imperial Bank of Commerce is one example a strong Canadian bank. Just take a look at its year-to-date performance. The stock is up more than 20% compared to negative performances for Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC).

At less than nine times forward earnings, the stock is downright cheap and don't be fooled by that 5.9% dividend yield and we mean that in a good way. Often times, high dividend yields are the product of low payouts and share prices. CIBC's annual payout is $3.01 a share. Compare that against many American banks and you'll quickly see that while Canada is cold in the winter, it may be quite warm for income investors.

Farming For Pharma Value
Eli Lilly (NYSE: LLY) Dividend Yield: 5.7% Forward P/E: 7.46. Eli Lilly is one of the largest pharmaceutical companies in the U.S., competing with the likes of Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE). And while critics of large pharmaceutical stocks argue that the group is threatened by generic competition and a lack of blockbuster drugs in their respective pipelines, Eli Lilly recently won FDA approval for its long-awaited blood thinner, Effient. Some investors think Effient could deliver $2 billion in sales within a decade.

While Eli Lilly is more of a long-term holding, it has been a favorite of options traders in recent weeks, with options activity soaring after Effient's approval. All that aside, a study released earlier this year said U.S. companies may see a 50% reduction in free cash flow this year, but mentioned Eli Lilly as one of the companies that may actually increase its cash position.

As of the end of 2008, Eli Lilly had $4.29 billion in free cash flow. Like CIBC, Eli Lilly's robust dividend yield of 6% actually features a nice payout in dollar terms. Shareholders currently receive $1.96 per share annually.

Can You Hear The Cash? Good.

Verizon (NYSE: VZ) Dividend Yield: 6.3% Forward P/E: 11. Dow component Verizon is the second-largest telecom company in the U.S, behind AT&T (NYSE: T), but Verizon has outperformed its larger rival year-to-date. Verizon has been gaining traction in providing home cable and internet service with its FIOS package, which brings fiber telecom lines directly into the customer's home. FIOS reviews have been sterling and AT&T currently lacks a similar product.

Verizon has one of the safer dividends in the Dow and the payout's strength is buoyed by the $2.7 billion in free cash flow the company reported at the end of the first quarter, an increase of $1.5 billion from a year earlier. Yielding 6.3% and trading at just 11 times forward earnings, Verizon is almost paradise for value stock lovers and it is a best of breed play in the telecom arena.

The Bottom Line: Lots Of Safety Here
The strong cash positions of the three companies highlighted and the integrity of their respective dividends makes them attractive options at this point. Investors eying CIBC should probably wait for some signs of economic recovery in Canada. Eli Lilly's fortunes are, of course, tied to its drug pipeline. Given those "X" factors, Verizon is probably the best of the bunch here and perhaps most likely to maintain or even raise its dividend in the future. (For additional reading, see The Importance of Dividends and Dissecting Declarations, Ex-Dividends and Record Dates.)

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