Nine High Dividends & Dividend Gainers in Services: Value and the Kitchen Sink (RRD, GPC, CCL, BLC, TWX, TWC, MHP, EAT, IPG)

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The “services sector” is almost too broad to be counted when screens are conducted. Throwing in publishers, media, cable, travel, restaurants, auto-parts and advertising into a single screen feels like a kitchen sink screen or a catch-all screen.  The reason this is the case is because we had a higher dividend threshold, discounted P/E ratios, and high return on equity criteria.  The key companies for dividends and value here today covered shares of R.R. Donnelley & Sons Company (NYSE: RRD); Genuine Parts Company (NYSE: GPC); Carnival Corporation (NYSE: CCL); Belo Corp. (NYSE: BLC); Time Warner Inc. (NYSE: TWX); Time Warner Cable Inc. (NYSE: TWC); The McGraw-Hill Companies, Inc. (NYSE: MHP); Brinker International Inc. (NYSE: EAT); The Interpublic Group of Companies, Inc. (NYSE: IPG).

The eight companies pay dividends ranging from 2.1% to nearly 5.4%.  Beyond attractive dividends,  all of these companies boast additional positive characteristics including: EPS growth this year exceeding 10%; forward PE’s lower than 14.5; price to free cash flow (P/FCF) ranging from less than 7 to 34; all returns on Equity (ROE) exceed  8.5%, six companies’ ROE exceed 14%.  All boast good liquidity with an average daily trading volume exceeding 750,000 shares.  Except where otherwise noted, the source for all performance and financial data is and these were meant to be in descending order of dividend yield.

R.R. Donnelley & Sons Company (NYSE: RRD) pays a dividend exceeding 5.3% with a startling 105% earnings to dividend payout ratio.  Clearly flat earnings will not cover the dividend for long.  And . . . just in time . . . this year’s earnings, reported at more than 800% versus last year, are anything but flat.  Earnings growth next year is anticipated to “normalize” at 13.7% over current earnings.  At less than 9.5%, Donnelly’s return on equity (ROE) is in the lower tier of the service sector companies listed here.  The company’s target price exceeds $26, more than 36% above current trading levels. The company’s forward PE is less than 9 and its price to free cash flow is less than 19.

In Monday trading, Donnelley’s shares closed at $19.37, up 1.52%.  Its 52-week price range is $14.25 to $21.34.  R.R. Donnelley & Sons has a shockingly high dividend and its $0.26 payout per quarter has been in place since 2003.  While that payout ratio looks higher now, Thomson Reuters estimates of $1.97 EPS in 2011.  Thomson Reuters also has a consensus price target of $25.00 per share, implying about 29% upside if that comes true.

Genuine Parts Company (NYSE: GPC) pays a dividend of nearly 3.5%, with an earnings to dividend payout of 54.06%.  Its forward PE is less than 14 and its return on equity (ROE) exceeds 18%.  In Monday trading, the company’s shares closed at $51.79, up 1.07%. The 52-week price range is $37.48 to 55.50. Genuine Parts Company has an implied upside of about 7.3% to the Thomson Reuters consensus price target of $55.56.  How many dividends are there in anything tied to the auto sector right now?  Very few.

Carnival Corporation (NYSE: CCL) pays a dividend of 2.80% with a low earnings to dividend payout ratio of 22.24%.  At less than 8.8%, Carnival’s return on equity (ROE) is in the lower tier of the service sector companies listed here.  Its forward PE is PE 11.53. Carnival’s shares closed at $35.73 on Monday, up 1.30%.  The 52-week trading range is $29.18 to $47.59.  Carnival Corporation has about 31% upside to the consensus price target of $46.88 and that is actually under the 52-week high of $48.14. This one just reported earnings, so don’t hold any of these ‘targets’ too tightly until after the analysts change their numbers this week.

Belo Corp. (NYSE: BLC) is difficult to count considering that it has just recently announced a $0.05 payout per quarter.  This comes to about 2.7% in yield, but this dividend had been suspended before its latest earnings announcement. We have left this in the screen, but we would recommend that you do your own calculations here as a result.  Its forward PE is around 8; its price to free cash flow is less than 7; and, it ROE is almost 40%, second highest among this group of service sector companies. In a world filled with uncertainty, we are reasonably sure that Belo Corporation’s shares closed at $7.24 in Monday trading, up 2.4%.  The shares’ 52-week price range is $5.04 to $9.27.