Sometimes high-yield stocks may not be the best investment strategy for your portfolio, especially if you are investing for the long term. In fact, some investors claim that the best long term returns come from low yield stocks, not high yield. This is an analysis of five low yield stocks to own now. These are stocks that currently distribute a low dividend, thus they are more likely to be better off financially in the long term and generate better returns for you. These stocks retain and reinvest most of their earnings to continue growing their business operations and reap higher financial benefits later.
Perrigo Co. (NYSE:PRGO) distributes an annual dividend of $0.32, has a yield of 0.30% and a payout ratio of 8.00%. For the most recent quarter, the stock increased its quarterly dividend from $0.07 to $0.08. During the last twelve months, sales and income increased 21.50% and 51.70%, respectively. Revenue for the last four years has been increasing at a compound annual growth rate of 12.38% while income has been increasing at a compound annual growth rate of 26.08% during the same time period.
Earnings per share (TTM) came in at $3.67 while its competitors, Dr. Reddy's Laboratories Ltd. (RDY) and Watson Pharmaceuticals Inc. (WPI) reported earnings of $1.69 and $2.06, respectively. Furthermore, earnings per share for Perrigo Co. have been increasing at a compound annual growth rate (CAGR) of 24.69% during the last four years. During the same period, earnings per share for Dr. Reddy's Laboratories increased at a CAGR of 16.31% while earnings per share for Watson Pharmaceuticals decreased at a CAGR of 7.51%.
The stock has been soaring since the beginning of 2009 and I believe this bullish trend will continue as a result of increasing revenue and earnings per share, slightly higher dividends, and strengthening cash flows.
Mosaic Co. (NYSE:MOS) issues an annual dividend of $0.20, has a yield of 0.40% and a payout ratio of 4.00%. Over the last twelve months sales and income increased by 47% and 204%, respectively. Revenue during the last four years has increased slightly at a CAGR of 0.32% while income increased at a CAGR of 4.82% during the same period. Earnings per share came in at $5.24 while its competitor Potash Corp. of Saskatchewan Inc. (POT) reported $ 3.51. Price to earnings ratio for Mosaic (10.62) is lower than Potash Corp (13.14), an indication the market may expect lower growth for the stock; however, it can also indicate the stock is cheaper than its competitor.
When looking at the balance sheet, I see that management has been paying off some of the long-term debt, decreasing to $761 million from $1.25 billion during the last three years. Although the stock was on a bearish trend for fiscal year 2011, I believe it will rebound with a healthier economy and higher demand for its agriculture products as markets across the world continue to develop.
Helmerich & Payne Inc. (NYSE:HP) issues a dividend of $0.28, has a yield of 0.40% and a payout ratio of 6.00%. In August 2011, the stock raised its quarterly dividend from $0.06 to $0.07. In October 2011, the stock plummeted to around $40, its previous resistance levels in 2010; however, it has rebounded since then and is now trading around $63 per share.
Sales and income increased 35.70% and 51.70%, respectively, during the last twelve months. Revenue during the last four years has been increasing at a CAGR of 8.01% while income decreased slightly at a CAGR of 1.53% during the same period. Earnings per share came in at $4.34 while its competitor Nabors Industries Ltd. (NBR) reported $1.38.
I think the stock is well positioned financially to continue increasing its market share and its revenue and earnings per share. In addition, from a technical perspective, I believe the stock will reach its previous resistance level of about $72 in the near future.
Anadarko Petroleum Corp (NYSE:APC) recently broke over its resistance level of around $85, reaching a new all-time high of $88.70. The stock issues an annual dividend of $0.36 and has a yield of $0.40.
Revenue during the last four years has decreased at a CAGR of 2.03%. Earnings per share were last reported at a loss of $5.32 while its competitors BP Plc (BP) and ConocoPhillips (COP) reported earnings of $8.06 and $8.97, respectively. The loss in income was primarily due to its unusual expense of nine times higher than the previous year. However, cash flow has been steadily increasing over the last four years, starting with a cash balance of $511 million in 2007 and ending with a balance of $3.7 billion for fiscal year 2010.
I expect this stock appreciation to continue with the help of better revenue, strong cash flow, and a higher demand for natural gases as the economic conditions improve globally. The stock has been on a bullish trend since the summer of 2010.
EOG Resources (EOG) distributes an annual dividend of $0.64, has a yield of 0.60% and a payout ratio of 15.00%. During the last twelve months, sales and income increased 66.00% and 579.20%, respectively. In addition, revenue over the last four years has been increasing at a CAGR of 8.88% while income decreased at a CAGR of 18.20% during the same period.
Earnings per share came in at $3.90 while its competitor Apache Corp. (APA) reported earnings of $11.47. Cash flow during the last five years has been increasing at a CAGR of 23.05%. With a five-year expected price-to-earnings-to-growth (PEG) ratio of 0.33, the stock may be undervalued. Typically, a stock that is appropriately priced has a PEG of 1.
The stock has been on a bullish trend since September 2011. It is trying to test its previous level of resistance around $120. I believe once it breaks that level, it may reach $140, its next level of resistance. This appreciation in value may be driven with the help of higher expected revenue and earnings per share and growing cash flows.
About the author:
I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.