Best Dividend Stocks

By Arthur Pinkasovitch | September 17, 2010 AAA

In order to assign a rating to stocks, Morningstar "uses projections of the company's future performance" and determines if the intrinsic value of the share corresponds to the current market price. Other factors that are integral to the rating process include the riskiness of the shares and a variety of other quantitative and qualitative components which affect the cash flows of the corporation. Such an analysis would help determine whether the stock is undervalued or overvalued.

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Choosing those stocks which are based on the criteria of high analyst praise, those that are undervalued and high dividend payouts should prove to be a solid addition to an investment portfolio.

Energy Dividends
First Energy Corp. (NYSE:FE) and Energy Transfer Partners (NYSE:ETP) have a five-star and four-star Morningstar rating, respectively. Although revenues have been decreasing on a year-over-year basis and FE was recently downgraded by Jefferies from "hold" to "underperform", the stock has lost over 20% year-to-date and could be due for a revert to previous price levels. On the other hand, ETP has gained 6% in 2010 and has outperformed the S&P 500, which has practically failed to gain any upward or downward momentum. Oppenheimer recently initiated coverage of the stock, placing a "perform" rating. First Energy offers investors a 5.9 dividend yield, while Energy Transfer Partners yields 7.5%.

Investors who wish to gain exposure to the energy sector should consider Canada's high dividend paying energy trusts. Pengrowth Energy Trust (NYSE:PGH) offers an impressive dividend yield of 7.7%, while Provident Energy Trust (NYSE:PVX) yields 11.1% respectively. Penn West Energy Trust (NYSE:PWE), another major player in Alberta's oil sands, recently cut its dividend from 15 cents to 9 cents in order to maintain sufficient capital to growth production. While the Alberta energy trusts will undergo changes to their taxation policies in the near future, investors can capitalize either on increased energy prices or simply collecting sizable dividends.

Diversified Dividends
In addition to First Energy and Energy Transfer Partners, two other four-star high-yielding stocks are found in the healthcare and media industries. Eli Lilly (NYSE:LLY), a manufacturer of pharmaceutical products, yields 5.5%, while Regal Entertainment (NYSE:RGC), a North American movie operator, yields 5.9%. Some analysts have suggested that Regal's dividend policy is unsustainable because it is too high, based on the level of corporate earnings. However, the movie theater industry is extremely elastic; as the worst of the recession is left behind, Regal's EPS figures should improve. Analysts are expecting 2011 earnings to grow by 57% in over 2010 levels.

The Bottom Line
While investors should take the opinions of analysts with a grain of salt, those shares that are admired by the investment community are a good place to formulate one's own research. Those offering a high dividend yield are definitely worth consideration.

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