Number four on the list is CSX Corporation (NYSE:CSX), a railroad company, which the author notes is a popular sector for Warren Buffett, who has owned BNSF Railway since 2009. He also explains that he believes more natural gas will move through trains as opposed to pipelines in the future.
I have to disagree once again with the author’s assumptions on this industry. I have three natural gas pipeline companies in my Perfect Dividend Portfolio; two are Master Limited Partnerships (MLPs) and one is a regular company (Enterprise Products Partners, Sunoco Logistics Partners, and Williams Companies.) While I do believe that railroads are a terrific investment, I like the MLPs better for an income portfolio.
CSX Corporation (NYSE:CSX) is currently trading at approximately $26 and yields 2.30%. It has paid and raised dividends for 8 years, its five-year DGR is a very hefty 24.7%, and it has returned 27% over the past twelve months.
Other metrics that I use when calculating a rating for a dividend company include analysts’ five-year annual growth estimate (14.5%, very nice), the company’s PE (14.3), and its dividend-payout ratio (31%).
CSX scores a 19 on my system, which would ordinarily qualify it for inclusion. However, it has two strikes against it. First, it has only been raising dividends for 8 years, and my minimum cutoff is 10. Also, at 2.30%, its yield is too low. I am looking in the 3%-4% range.
The last company in the list of “dividend bubble stocks” is Apple Inc. (NASDAQ:AAPL). Um, excuse me? I haven’t seen too many articles including Apple as a dividend stock.
However, to be fair, I will evaluate the company using the same criteria as I use for all the others.
Apple Inc. (NASDAQ:AAPL) is currently trading at approximately $442 and yields 2.80%. It only began paying a dividend in 2012, and it’s a serious stretch to think it would qualify for many dividend portfolios on that basis.
Other metrics include analysts’ five-year annual growth estimate (72.8%, which still makes it an impressive growth company), the company’s PE (10.3), and its dividend-payout ratio (19%).
Okay, so Apple Inc. (NASDAQ:AAPL) scores an 11. Give it nine or ten more years in this manner, and perhaps I will concede that it belongs in a dividend portfolio.
I’ve prepared a chart which shows how each company scores on my rating system.
| Years | Yield | DGR | EGR | Payout | Total Return | PE | TOTAL | |
|---|---|---|---|---|---|---|---|---|
| PSX | 0 | 0 | 0 | NA | 4 | 4 | 4 | 12 |
| PG | 4 | 2 | 2 | 2 | 2 | 4 | 2 | 18 |
| KO | 4 | 1 | 2 | 2 | 2 | 3 | 1 | 15 |
| CSX | 0 | 0 | 4 | 4 | 4 | 4 | 3 | 19 |
| AAPL | 0 | 1 | 0 | 4 | 4 | 0 | 2 | 11 |
So, in conclusion, I argue that none of these companies are in a bubble. And that the entire dividend-stock field is not in a bubble, because it’s not possible.
And honestly, why would you want to buy a company that you considered to be in a bubble? Yes, it might go up higher, or you might be the last fool before it pops. How can you take that chance?
If you want companies with great dividend-paying histories, with excellent yields, with strong prospects for future growth and good current valuations, I encourage you to check out my Perfect Dividend Portfolio. It holds what I believe are the ten best.
The article 5 Dividend Companies in a Bubble? originally appeared on Fool.com and is written by Karin Hernandez.
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