Fat Dividend Yields From Strong Companies: Coke, Dow Chemical and Others

Everyone loves a blowout stock, but in most portfolios it’s the far less sexy performers that pay the bills. Modest but steady share price gains, dividend checks worth cashing – they seem like such small things to insist upon when Intuitive Surgical (ISRG) returns 70% in 12 months, pushing Intuitive Surgical’s market cap toward $20 billion. But those boring workhorse qualities get a lot more respect in years when Treasury yields are pitiful and growth outlooks iffy. In other words, 2012’s looking like a fine time for holding some underappreciated stocks.

Coca-Cola (KO) personified the workhorse of 2011. Shareholders got a nice 9% share price gain by year’s end, without too many outsized drops along the way, and Coke had a dividend yield most of the year between 2% and 3%. It was a nice feat for an old company that found growth again, and its current strategy calls for more of the same this year.

The Coca-Cola Company Stock Chart by YCharts

To find more Coca-Colas for 2012, we set up the YCharts Stock Screener to look for shares offering dividend yields of at least 3% and a return on equity of 8% or greater. We screened out companies that YCharts Pro deemed less than strong on fundamentals. We also asked for earnings and revenue growth. While that recent growth certainly doesn’t guarantee a rising share price, it’s a point for optimism. Here’s a sample of the results.

Dow Chemical (DOW)

Shares of Dow Chemical have been going up since October, when the company announced results that included price and sales gains in all of its operating segments. Dow has a roughly $35 billion market cap.

Dow benefits from the cheap natural gas prices that have boosted U.S. petrochemical production. Perhaps as important though, is that it’s a very old large cap offering a 3.49% yield about as cheaply as it ever has.

Dow Chemical PE Ratio Chart by YCharts

McGrath RentCorp (MGRC)

McGrath rents portable spaces, both the kind people work in and the kind that holds liquids and solids, to businesses. It also rents and sells electronic equipment used in aerospace, defense and manufacturing industries.

McGrath has been a small cap for more than two decades – its market cap now is about $700 million – but investors began to take particular interest in it this year, when its revenues and profits came roaring back to life. This is largely due to great gains in the Adler Tank Rental division, its fastest growing and most profitable division. Shares are up more than 20% in the past three months.

McGrath RentCorp Net Income TTM Chart by YCharts

Its dividend yield now is 3.20%, and the company has increased its dividend for 20 consecutive years.

Canon (CAJ)

As a Japanese camera maker, Canon has lately been on the fringes of news no investor wants to hear. Competitors Eastman Kodak (EK) and Olympus imploded for reasons of obsolescence and fraud, respectively. Floods and earthquakes disrupted supply chains and rocketed costs. Even so, Canon’s financial performance was respectable, if not remarkable.

Dow Chemical Net Income TTM Chart by YCharts

Canon isn’t promising a wild comeback this year, but it does note that overall demand for the laser and ink-jet printers it produces in its biggest division is steadily growing, as is demand for its products related to smartphone manufacturing. Its dividend yield is at 3.24%.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.