AT&T Inc. (T): Are These Dividend Stocks Overvalued?

With such iconic brands as Gillette razors and Tide laundry detergent providing steady cash flow and a payout ratio of only 50%, the company should be able to keep sending payments out to investors every three months.

While it may be considered technically “overpriced” because of its elevated P/E, The Procter & Gamble Company (NYSE:PG) is probably worth holding for the long term just for the consistent dividend payments. I don’t think you can go wrong with the stock.

Generating returns

Another stock in one of the “risk” sectors according to some is the New York based utility Consolidated Edison, Inc. (NYSE:ED). Con Ed is also a dividend grower, pays $0.62 a share and yields 3.9%. However, because its P/E of 16.3 is above its 5-year average of 14.6 and is approaching that of the overall market, some analysts caution that the valuation might be a bit too high.

I would love to have a company like Consolidated Edison, Inc. (NYSE:ED) in my portfolio. It generates lots of cash and has a modest payout ratio of 63%. Plenty of room to keep growing the dividend. With a minuscule beta of 0.17, the stock isn’t going anywhere fast.

Undervalued?

Which stocks are undervalued right now?

The same sector that blew up the Internet bubble is now the savior for the impending bursting of the dividend balloon according to those in the know. Valuations of many of the tech darlings are now “reasonable” and trade at a discount relative to the market. These stocks have lagged a bit and are ripe for some appreciation according to the theory.

A techie that probably IS undervalued is Intel Corporation (NASDAQ:INTC), a major supplier of microcircuits to the computer and communications industries.

Assuming that the company won’t go down the tubes because of the rapidly declining PC market it might be a stock to consider. Maybe it can get more of a foothold in mobile device technology.

Intel Corporation (NASDAQ:INTC) is well managed, has a relatively low debt level and pays a hefty dividend, resulting in a 4% yield. The stock trades at a steep discount to the market with a P/E of only 11. A value investor may want to consider it.

Conclusion

As we all wait for the next correction, the bursting of the latest bubble, I am content collecting dividends four times a year from some of those stocks now deemed to be expensive.

They may seem to be overvalued, but this might just be an illusion in an low-rate world.

The article Are These Dividend Stocks Overvalued? originally appeared on Fool.com is written by Mark Morelli.

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