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5 Cheapest Dow Dividend Stocks

Stocks in this article: CVX PFE MRK JPM HPQ

BOSTON ( TheStreet) -- The Dow Jones Industrial Average has outpaced the S&P 500 Index and Nasdaq Composite in 2011, perhaps indicating that high-quality stocks are taking the lead in this maturing bull market. The following five dividend-paying Dow stocks, still undervalued on a historical basis and relative to peer investments, are safe bets as the economy strengthens. Below, the stocks are ordered by forward earnings multiple.

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5. Chevron (CVX - Get Report) is an integrated oil and gas company, with exploration, production and refining operations. Chevron is still remarkably cheap, despite ranking as the best-performing Dow stock of 2011 so far, with a 19% gain. It trades at a trailing earnings multiple of 11, a forward earnings multiple of 9, a book value multiple of 2.1, a sales multiple of 1.1 and a cash flow multiple of 6.9, 56%, 35%, 59%, 55% and 25% discounts to oil and gas industry averages. Its PEG ratio, a measure of value relative to growth, of 0.6 demonstrates a 40% discount to fair value.

Chevron's fourth-quarter net income surged 72% to $5.3 billion, or $2.64 a share, as revenue gained 9.3% to nearly $50 billion. Its gross margin widened from 21% to 24% and its operating margin expanded from 10% to 13%. Chevron held $17 billion of cash and $11 billion of debt at quarter's end, for a quick ratio of 1.3, a debt-to-equity ratio of 0.1 and a net cash position of $5.6 billion. Chevron receives "buy" calls from 75% of analysts in coverage, indicating optimism.

Bullish Scenario: Credit Suisse forecasts that Chevron will rise 20% to $130 in 12 months.

Bearish Scenario: JPMorgan predicts that the stock will fall 14% to $93 during 2011.

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