General Dynamics Corporation (GD), Intel Corporation (INTC) And 5 Wide-Moat Value Dividend Stocks

Page 1 of 2

Warren Buffett has been one of the most prominent investors in companies with wide moats. He often referred to his investment targets as companies that possess “long-term competitive advantage in a stable industry” or, in other words, “an enduring ‘moat’ that protects excellent returns on invested capital.” Wide moats and excellent ROIC, likely the best measure of economic profitability, generally go hand in hand. What’s more, over longer time horizons, wide moats also seem to go hand in hand with solid total returns.

For illustration, the Morningstar Wide Moat Focus Index, consisting of 20 wide-moat stocks that Morningstar considers “best value,” has outperformed the broader market over both three- and five-year periods. Its annualized excess return over the five-year period was more than double the U.S. market’s return.

hedge fund research

This is just one of the few strategies with market-beating potential available to investors today.

Wide-moat stocks can be good investments, particularly if they boast value attributes. Based on the aforementioned Morningstar’s wide-moat stocks with compelling value characteristics, here is a closer look at five such stocks that pay dividend yields above 2.0%.

Let’s get started

Exelon Corporation (NYSE:EXC), the largest U.S. nuclear power company, is a wide-moat company in the unregulated electricity business. This company’s yields ballooned due to speculations of a dividend cut amid falling profitability. The speculation materialized back in February, when the company slashed its dividend by 41% in order to preserve its debt rating and to free up some $700 million annually for investments in generation projects that will provide quick returns. Exelon Corporation (NYSE:EXC)’s fortunes are tied to unregulated electricity markets, in which electricity prices have slumped in recent years in response to falling natural gas prices amid oversupply driven by the shale gas boom.

The stock is thus also a play on natural gas, whose prices have started to recover this month, buoying Exelon along. Exelon currently yields 3.4% on a payout ratio of 50% of the current-year EPS estimate. The dividend payout ratio is expected to rise this year and next as analysts forecast lower EPS in both years. Most of the bad news is priced into Exelon Corporation (NYSE:EXC)’s valuation, so the stock looks fairly priced at 14.5x forward earnings, below its respective industry’s 16.5x. Better natural gas pricing, which is possible but unlikely in the medium term, could lead the stock price higher. In terms of hedge fund interest, Citadel’s Ken Griffin was bullish about this stock last quarter.

The Western Union Company (NYSE:WU), a money transfer company, is a leader in its industry with strong competitive advantages due to its vast scale of operations that dwarfs those of its competitors. On average, the company processes 28 transactions per second, servicing some 70 million senders and receivers as well as 100,000 business-to-business customers. Its leading position in the industry is preserved through a regulatory environment that creates significant barriers to entry. The Western Union Company (NYSE:WU) is currently facing some headwinds, as it forecasts lower revenues this year, which should lead to an EPS decline of up to 19.5% from the year earlier.

Still, Western Union sees 2013 as a transition year in which it will “adjust its value proposition in consumer money transfer and invest for future growth.” Western Union’s revenues and profitability are likely to recover in 2014 and 2015, driven by a 7% growth in cross-border remittances and faster growth in the digital formats. Trading at 10.6x forward earnings, below its five-year average, and boasting a dividend yield of 3.5%, Western Union is an attractive value and income play. The company’s payout ratio is low at 36% of the current-year EPS estimate. The Western Union Company (NYSE:WU) has had an excellent record of dividend growth over the past five years, increasing dividends at an average CAGR of 62%. Last quarter, the stock was popular with Chieftain Capital’s John Shapiro.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!