Three Dividend Paying Value Stocks

NEW YORK (TheStreet) -- The S&P 500 (SPY) recorded another record close Wednesday marking five closes in a row above the opening.

For value investors seeking bargains, record S&P 500 prices thin out the pool of potential value buys in a hurry. Fortunately, the price you pay today only needs to make sense in the future, not the past. For example, you could have bought shares of Apple ( AAPL) for less than $430 just a few days ago; however, if you buy now and Apple climbs above $600 a year later, will you distress that you could have saved $10 if you only pulled the trigger three days earlier? I don't think so.

In 6 Climbing High-Yield Dividend-Paying Stocks a few months ago, I explained that stocks should be grouped into two categories.

Category one is dividend payers, and category two is every other stock. I came to this conclusion rather quickly when I found that, on average, dividend paying stocks perform better than non-dividend paying stocks. Immediately after knowing that category one is the premium selection group, why bother with anything else when there are thousands of companies to select from? There is no reason short of a desire to increase the research required.

Since we can't review all the companies in a meaningful way anyway, we need to reduce our selection down quickly. I continue to narrow the selection by eliminating companies with "earnings fatigue," or falling earnings that could reduce the ability of a company to continue paying their dividend. Ideally, I want to focus on companies that have a history of increasing disbursements.

Nothing says "I love you" quite like reading a company's announcement that they are raising the dividend. Investors receive a bigger check, and as an added bonus, the announcements are often followed by a sharp pop in share price. It's almost like a two-for-one.

At least once a week I find the dividend payers I like best for longer term holds. My primary objective is to obtain yield, with capital appreciation as a secondary goal. Take a look and see if these stocks fit comfortably in your portfolio.

T Dividend Yield Chart T Dividend Yield data by YCharts

AT&T ( T)

Background: AT&T is a premier communications holding company. Its subsidiaries and affiliates, AT&T operating companies are the providers of AT&T services in the U.S. and around the world.

Ma Bell is near the 52 week high, and we can anticipate a resistance level test within the next few weeks. If you're not holding some AT&T now, and don't feel comfortable buying when the price is "this high," at least place the ticker on your watch list for a buy into a dip.

The company has a rich history of rising dividend payments, and I see no reason why that will change in the near future. Investors are receiving $1.80 in dividends for a yield of 4.7%. Almost like clockwork, AT&T raises their dividend, and we appear closer to the next dividend hike than the last one.

T Profit Margin TTM Chart T Profit Margin TTM data by YCharts

The payout ratio, a key metric I pay attention to based on forward earnings estimates is about 55%. The payout ratio is higher than I would prefer, but well within my tolerance level.

The last reported short interest is paltry and without reason to consider it a significant influence at only 1.7% of the average trading float. Short interest under 2% is bullish for a rising stock.

BMY Dividend Yield Chart BMY Dividend Yield data by YCharts

Bristol-Myers Squibb ( BMY)

Background: Bristol-Myers Squibb Company, a biopharmaceutical company, engages in the discovery, development, licensing, manufacturing, marketing, distribution, and sale of biopharmaceutical products that help patients prevail over serious diseases worldwide.

52 Week Range: $30.64 to $41.79

Price To Book: 4.9

Earnings Payout Percentage: 70%

I like Bristol-Myers and the space overall, albeit, I like Bristol-Myers a lot more after a dip in price to give us a buying pullback. A small retracement into the upper $39s makes an ideal entry from my desk. Bristol-Myers earns a spot on the list due to the stable profit generation and stable dividend payments. In 2009 and again in 2011, Bristol-Myers raised its dividend. They followed up last year and the year before, but you want exposure to companies that are able to increase dividends while others are busy cutting or halting dividend payments altogether.

Currently, the short interest based on the float is negligible and not a significant concern. Short interest is 2.4%. A quick glance at a daily or weekly chart demonstrates short sellers are not in a happy place right now, but there isn't enough short interest to create a meaningful squeeze.

BMY Payout Ratio TTM Chart BMY Payout Ratio TTM data by YCharts

DD Payout Ratio TTM Chart DD Payout Ratio TTM data by YCharts

E. I. du Pont de Nemours ( DD)

Background: DuPont is involved in science and technology in a range of disciplines including high-performance materials, specialty chemicals, pharmaceuticals and biotechnology. The company operates globally through strategic business units.

52 Week Range: $41.67 to $53.98

Price To Book: 4.6

Earnings Payout Percentage: 46%

DuPont may not be the perfect stock to own but it gets incredibly close. With a closing price on Wednesday less than $50 a share, it's still cheap. While the market is making new highs, DuPont hasn't kept pace.

It's hard to imagine a company that trades about six million shares a day can go unnoticed, but what other explanation is plausible? At first glance, an investor may point to the earnings misses. It's true DuPont missed three out of the last four earnings reports; however, the misses are just a component of the equation.

The last time DuPont reported a miss, it was flirting with a single digit earnings multiple. In a nutshell, the last time DuPont missed, it was already priced in. During the most recent earnings report, Dupont gave what Wall Street wanted, a respectable beat, but the French company has yet to fall in favor with investors.

The window of opportunity for a value investment may promptly come to a close. As DuPont's shares continue to climb towards a new 52 week high, the media will pick up on the story while technical analysts will fixate on the solid bullish trend with rising fundamentals. Part of the hesitation may come from analysts.

More than half of the analysts covering DuPont rate the company a hold. This boggles my mind, but whatever, they often upgrade on peaks and downgrade at the very bottom. To be fair, some analysts I follow closely and genuinely embody a talent for extrapolating the appropriate share price bias.

If you buy DuPont, you can expect to receive $1.72 annually in dividend payments for a current yield of about 3.5%. DuPont raised the dividend last year. The 2012 dividend increase was the first since 2007, so don't count on dividend hikes each year like AT&T, but the yield is already rich.

The short interest is slightly elevated, albeit, not yet enough to make me want to worry about it. As long as it stays under 4.5%, I wouldn't give it much thought. Short interest is 3.8%, and if it begins to trend higher I recommend monitoring for a possible exit.

DD Payout Ratio TTM Chart DD Payout Ratio TTM data by YCharts

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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