A Dow Dividend Stock in the Bargain Bin

BOSTON (TheStreet) -- Large-cap companies are selling at bargain-bin prices despite strong stock gains in the past two months. Investors considering increasing equity holdings should consider Dow stocks first and foremost. Not only do they offer some of the highest dividend yields in the U.S., but they also trade at discounts to respective industry averages.

Currently, Coca-Cola(KO) and JPMorgan(JPM) are the highest-rated Dow stocks, but third-ranked Chevron(CVX), the world's second-largest energy company, is a better value investment, according to TheStreet's quantitative equity model.

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Chevron reported third-quarter results last week, missing analysts' adjusted earnings consensus by 13% and their revenue forecast by 1.9%. Despite the downside surprise, Chevron's stock fell just 2.2% as a result of the earnings announcement.

Net income declined 1.7% to $3.8 billion and earnings per share dropped 2.6% to $1.87. Revenue grew 7.6% to $46 billion. The net profit margin tightened from 8.9% to 8.1%. For the first nine months of 2010, Chevron's diluted earnings soared 84% to $6.84 a share. Chevron is beginning a share-buyback program between $500 million and $1 billion per quarter, starting in the fourth quarter. In the third quarter, shares outstanding increased marginally from the year-earlier tally. Oil-equivalent production climbed 1% to 2.7 million barrels per day.

The sell-side is bullish on Chevron. Of researchers evaluating the company, 19 advise purchasing its shares and six recommend holding. None advocate selling. In contrast, Exxon Mobil(XOM), the larger oil-and-gas Dow component, receives just nine "buy" ratings, 12 "hold" calls and one recommendation to "sell." Chevron's median 12-month price target of $94.73 suggests that the stock will return 15%, excluding dividends. The stock pays a quarterly distribution of 72 cents, equal to a yield of 3.5% and a safe payout ratio of 33%.

Chevron sports a three-year dividend growth rate of 8.4% and a five-year growth rate near 11%. Barclays(BCS), ranked as the best equity researcher for seven consecutive years by Institutional Investor, is bullish. It has a $110 price target on the stock, the highest on the Street, predicting an advance of 34%. Valuation is compelling. Chevron trades at a trailing earnings multiple of 9.8, a forward earnings multiple of 8.4, a book value multiple of 1.6 and a sales multiple of 0.9 -- 39%, 44%, 65% and 54% discounts to oil-and-gas industry averages.