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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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The PEG Ratio - price/earnings to growth ratio, is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.

I searched for very profitable companies with strong growth prospects that pay rich dividends. Those stocks would have to show a very low debt and have their PEG ratio below 1.00.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

1. Trailing P/E is less than 14.

2. Forward P/E is less than 13.

3. The PEG Ratio is less than 1.00.

4. Average annual earnings growth estimates for the next 5 years is greater than 10%.

5. Dividend yield is greater than 4.0%.

After running this screen on December 29, 2012, I obtained as results the 8 following stocks:

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Giant Interactive Group, Inc. (GA)

Giant Interactive Group Inc. develops and operates online games in the People's Republic of China. It primarily offers multiplayer online role playing games. Giant Interactive Group Inc. was founded in 2004 and is based in Shanghai, the People's Republic of China.

Giant Interactive Group has no debt at all and the trailing P/E is very low at 6.99 and the forward P/E is even lower at 6.11, the PEG ratio is also very low at 0.64. The average annual earnings growth for the past 5 years was very high at 34.41% and the average annual earnings growth estimates for the next 5 years is also very high at 25.42%. The forward annual dividend yield is very high at 5.58% and the payout ratio is only 39%. The stock price is 2.57% above its 20-day simple moving average, 2.92% above its 50-day simple moving average and 6.86% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. On November 13, Giant Interactive Group reported its 3Q financial results (here), which beat expectations on EPS and on revenues. On that occasion, Mr. Yuzhu Shi, Giant's Chairman and Chief Executive Officer commented:

Our solid third quarter results reflect the strength of our expanded MMO game portfolio. Overall, we are pleased to see our underlying businesses perform well, especially with respect to our diversification efforts.

All these factors -- the very low multiples, the strong growth prospects, the good 3Q financial results, the fact that the stock is in an uptrend and the rich dividend -- make GA stock quite attractive.

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Chart: finviz.com

IRSA Investments and Representations Inc. (IRS)

IRSA Investments and Representations Inc., through its subsidiaries, engages in a range of diversified real estate investment and related activities in Argentina. IRSA Investments and Representations, Inc. was founded in 1943 and is headquartered in Buenos Aires, Argentina.

IRSA Investments has a very low trailing P/E of 7.07 and even a lower forward P/E of 4.79; the PEG ratio is very low at 0.54. The price to free cash flow for the trailing 12 months is very low at 2.85 and the average annual earnings growth estimates for the next 5 years is at 13%. The forward annual dividend yield is very high at 9.26% and the payout ratio is at 65.7%. The company is trading 29.64% below its 52-week high and has 64% upside potential based on the consensus mean target price of $11.50. On November 19, IRSA Investments reported its 1Q fiscal 2013 financial results (here). Net income for the first quarter of 2013 was ARS 50.8 million, compared to a loss of ARS 112 million in 2012 mainly due to lower financial charges and higher income from Banco Hipotecario and the valuation of Hersha. IRSA's revenues increased 12.7% in the first quarter of 2013, to ARS 486.3 million, and EBITDA rose 14.3% to ARS 248.3 million. Revenues and EBITDA from the Shopping Center segment grew 17.9% and 10.7%, respectively, in the first three months of 2013, compared to 2012. The EBITDA/Revenue margin, excluding common maintenance expense fund and common promotional fund, reached 80%, and occupancy stood at 98.4%. The very low multiples and the rich dividend; all these factors make the IRS stock quite attractive.

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Chart: finviz.com

Meredith Corporation (MDP)

Meredith Corporation, a media and marketing company, engages in magazine publishing and related brand licensing, television broadcasting, digital and customer relationship marketing, digital and mobile media, and video creation operations in the United States.

Meredith Corporation has a low debt (total debt to equity is 0.51) and it has a low trailing P/E of 13.95 and even a lower forward P/E of 12.39; the PEG ratio is quite low at 0.93. The price to free cash flow for the trailing 12 months is at 15.94 and the average annual earnings growth estimates for the next 5 years is quite high at 15%. The forward annual dividend yield is very high at 4.59% and the payout ratio is at 63.7%. Meredith Corporation will report its latest quarterly financial results on Tuesday, January 22, 2013. MDP is expected to post a profit of $0.87 a share (here), a 24.2% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the price in the short term.

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Chart: finviz.com

NGP Capital Resources Company (NGPC)

NGP Capital Resources Company is a business development company specializing in investments in small and mid size and middle market companies.

NGP Capital has a low debt (total debt to equity is only 0.40) and it has a very low trailing P/E of 8.85 and a very low forward P/E of 9.08; the PEG ratio is also very low at 0.80. The forward annual dividend yield is very high at 9.04% and the payout ratio is at 73.6%. The company is trading 9.33% below its 52-week high and has 55% upside potential based on the consensus mean target price of $11.00. The stock price is 3.46% above its 20-day simple moving average, 1.74% above its 50-day simple moving average and 5.22% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. On November 06, NGP Capital Resources reported its 3Q financial results (here).

Operating Results:

  • Total investment income: $6.3 million
  • Net investment income: $3.4 million, or $0.16 per share
  • Net realized gain on investments: $1.7 million, or $0.08 per share
  • Net unrealized gain on investments: $7.1 million, or $0.33 per share
  • Net increase in net assets resulting from operations: $12.2 million, or $0.57 per share

All these factors -- the very low multiples, the rich dividend and the fact that the stock is in an uptrend -- make NGPC stock quite attractive.

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Chart: finviz.com

PDL BioPharma, Inc. (PDLI)

PDL BioPharma, Inc. engages in intellectual property asset management and royalty bearing assets investment activities.

PDL BioPharma has an extremely low trailing P/E of 5.18 and even a lower forward P/E of 4.57; the PEG ratio is also very low at 0.37. The price to free cash flow for the trailing 12 months is very low at 8.27 and the average annual earnings growth estimates for the next 5 years is at 14%. The forward annual dividend yield is very high at 8.46% and the payout ratio is at 41.8%. On November 05, PDL BioPharma reported its 3Q financial results (here), which missed EPS expectations by $0.01 and was in-line on revenues. Royalty revenues for the third quarter of 2012 increased two percent to $85.2 million from $83.4 million reported in the third quarter of 2011. For the first nine months of 2012, royalty revenues increased three percent to $288.5 million from $278.8 million reported in the comparable period of 2011. Total revenue for the first nine months of 2012 of $288.5 million is flat when compared to total revenue for the first nine months of 2011 of $289.2 million, as a result of a one-time settlement payment of $10 million from UCB Pharma received in 2011.

All these factors -- the very low multiples, the strong growth prospects and the rich dividend -- make PDLI stock quite attractive.

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Chart: finviz.com

Triangle Capital Corporation (TCAP)

Triangle Capital Corporation is a business development company specializing in private equity and venture capital investments.

Triangle Capital NGP Capital has a quite low debt (total debt to equity is 0.67) and it has a very low trailing P/E of 11.05 and a very low forward P/E of 10.85; the PEG ratio is also very low at 0.74. TCAP records strong growth on all key parameters; the average annual earnings growth for the past 5 years was very high at 22.78%, the average annual sales growth for the past 5 years was also very high at 56.62% and the average annual earnings growth estimates for the next 5 years is quite high at 15%. The forward annual dividend yield is very high at 8.65% and the payout ratio is at 90.2%. On November 07, Triangle Capital reported its 3Q financial results (here), which beat EPS expectations by $0.03. In commenting on the Company's results, Garland S. Tucker, III, President and Chief Executive Officer, stated:

The third quarter of 2012 was another exceptionally strong quarter for Triangle. We were active in terms of new investments, we generated net investment income that was in excess of our dividend, we raised our dividend during the quarter, and we generated realized gains on our investment portfolio. In total, I could not be more pleased with our performance and I give great credit to our operational team for continuing to perform so well.

All these factors -- the very low multiples, the strong growth prospects, the good 3Q financial results and the rich dividend -- make TCAP stock quite attractive.

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Chart: finviz.com

THL Credit, Inc. (TCRD)

THL Credit, Inc. is a private equity and mezzanine firm specializing in mature, bridge, PIPES, industry consolidation, acquisition, recapitalization, change of control transactions, and growth capital investments in both sponsored and unsponsored middle-market companies.

THL Credit has a very low debt (total debt to equity is only 0.14) and it has a very low trailing P/E of 11.72 and a very low forward P/E of 10.08; the PEG ratio is also very low at 0.43. The average annual earnings growth estimates for the next 5 years is very high at 27.5%. The forward annual dividend yield is very high at 9.16% and the payout ratio is at 100.6%. The stock price is 0.86% above its 20-day simple moving average, 3.09% above its 50-day simple moving average and 11.10% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. Analysts recommend the stock (here) -- among the seven analysts covering the stock, four rate it as a strong buy and three rate it as a buy. On December 20, THL Credit announced (here) that its Board of Directors has declared a special dividend of $0.05 per share payable on Jan. 28, 2013, to stockholders of record as of Dec. 31, 2012. The dividend will be paid from taxable earnings and reported to shareholders on Form 1099-DIV after the end of the calendar year.

All these factors -- the very low multiples, the strong growth prospects, the analysts' recommendation, the fact that the stock is in an uptrend and the rich dividend -- make TCRD stock quite attractive.

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Chart: finviz.com

Tower Group Inc. (TWGP)

Tower Group, Inc., through its subsidiaries, provides commercial, specialty, and personal property and casualty insurance products and services to businesses in various industries and to individuals in the United States.

Tower Group has a very low debt (total debt to equity is only 0.43) and it has a very low trailing P/E of 13.02 and a very low forward P/E of 6.54; the PEG ratio is also very low at 0.72. The average annual earnings growth estimates for the next 5 years is quite high at 18%. The forward annual dividend yield is quite high at 4.17% and the payout ratio is at 54.3%. The company is trading 21.63% below its 52-week high and has 25% upside potential based on the consensus mean target price of $22.50. On December 07, Tower Group announced (here) that it now expects the consummation of its previously announced merger with Canopius Holdings Bermuda Limited to occur in the first quarter of 2013. Tower's preliminary proxy materials continue to be under review by the Securities and Exchange Commission and, accordingly, the approval of the merger by Tower stockholders will not occur in 2012. In addition to the approval of Tower's stockholders, the merger remains subject to obtaining the regulatory approval of governmental and market authorities.

The very low multiples, the strong growth prospects, the rich dividend and the fact that TWGP stock is selling way below book value (price to book value ratio is only 0.65) make TWGP stock quite attractive.

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Chart: finviz.com

Source: 8 High-Yielding Dividend Stocks With Very Low PEG Ratios