Thursday, December 22, 2011

Sensing Weakness In 2 Dividend Growth Stocks

The volatile markets have provided frustration, upset stomachs, dizziness and outright rage for some investors. I can't say I generally share these symptoms. Volatility, to me, provides opportunity. Looking at the recent volatility of the market I'm currently seeing two dividend growth stocks that have been more volatile than the general market and that may provide opportunity for investors. Let's take a look.

Intel Corporation (INTC)

Per Morningstar:

Intel is the largest chipmaker in the world. It develops and manufactures microprocessors and platform solutions for the global personal computer market. Intel pioneered the x86 architecture for microprocessors.

Intel is the largest firm in their field. They are an absolute giant. They are currently trading for a P/E ratio of 10.23 based EPS of $2.31 and a current stock price (as of this writing) of $23.68 per share. The entry yield currently sits at 3.55%, which is solid. Intel has raised their dividend payout twice this year alone! They have a solid balance sheet, a dominant position in their sector and are proving to be very shareholder friendly. Although INTC, and tech stocks in general, were trading at very lofty values before the dot-com bubble burst, I think INTC offers value here after almost a decade of trading sideways.

I think there is a pretty solid value on the price here as Intel is a world leader in their field and although the increasing use of tablets containing competitor ARM's chips is concerning, I think Intel remains a solid buy in the tech space. The demand for Intel's chips will stay strong as the servers needed to handle the future of cloud computing and communication from increasing use of smart phones and tablets run on microprocessors that are made largely by Intel. They are down by more than 5% over the last week and have shown a lot of weakness. I think this is a potential time to initiate a position with INTC, or top up holdings.

Emerson Electric Co. (EMR)

Per Morningstar:

Emerson manages five business segments: process management (28% of sales), industrial automation (21%), network power (27%), climate technologies (16%), and tools and storage (7%). Primary products include motors, drives, valves, switches, test equipment, air conditioning compressors, electric tools, and home storage solutions. 

Emerson Electric has shown a lot of weakness lately. It's down 8.87% over the last 5 trading days vs. the S&P 500 that's actually up by more than 2%. This underperformance has me interested as a value-oriented investor. They are currently trading for a a P/E ratio of 14.43 based on EPS of 3.26 and a stock price of $46.97 (as of this writing). They have an entry yield of 3.41%, which is high for EMR. They have raised dividends for 55 years straight, which puts this stock in rare company. This company, in my opinion, is a solid, diversified company that is trading for an attractive price on recent weakness. It has a solid balance sheet, with a debt/equity ratio of 0.3.

I think EMR's wide portfolio of businesses provides an individual investor the safety and security of diversity within one individual company. Emerson has proven to be very shareholder friendly with a long track record of raising dividends, with its most recent raise this past November, going from $0.35 quarterly to $0.40 quarterly. That's a dividend boost of 12.5%. I think if you're looking for a diversified industrial stock that has shown a lot of weakness in the recent volatility of the overall market, that is friendly to shareholders with a long-term track record of boosting payouts and a solid balance sheet EMR is a solid place to look right now.

Full Disclosure: Long INTC, EMR.

Thanks for reading.

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