This article will focus on a stock screen that I ran looking for technically oversold stocks that pay a decent dividend. The stock screener had the following attributes:
- A component of the NYSE or the NASDAQ
- A return on equity of 10% or greater TTM
- EPS growth of 10% or more for the next fiscal year
- A dividend yield of at least 3%
- RSI oversold
Please note that on the following stocks, no further research other than what is being presented has been conducted. Please conduct your own research and due diligence before deciding if you would like to invest in these stocks. This screener was run on Sunday, 12/30/2012. It produced five stocks. Of these stocks, one of the stocks was Einstein Noah Restaurant Group (BAGL). Since I have recently written an article about this company which provided reasons investors should take a look at its stock, I will not include it in this analysis. You may access that article by clicking here. Here are the four stocks:
Arthur J. Gallagher & Co. (AJG) is the first company. It trades on the NYSE. It is in the insurance industry. It has a market capitalization of $4.3 billion and is currently trading at $34.47 per share. Over the past 52 weeks, the stock is up 2.35%. It currently pays a dividend of $1.36 per share per year, giving it a current yield of 3.9%. It has a trailing p/e ratio of 20.48 and a forward p/e ratio of 16.34.
Arthur J. Gallagher & Co. provides insurance brokerage and risk management services to a variety of clients. It has a good amount of cash on its latest September 2012 balance sheet: $1.1 billion. For the three quarters so far this year, based on the combination of the cash flow statements for these three quarters, the dividend has been covered by free cash flow (cash flow from operating activities less cash used for capital expenditures). In the last month, upon looking at a one-year price chart for this company, the stock price has dropped by about $2 per share. Mostly, the only news that has been out in this time about the company has been to announce some acquisitions it has made, such as acquiring Brendis & Brendis Inc. Acquisitions can sometimes put short-term, or even long-term price pressure on a company if investors feel the company is overpaying for them. Out of the four stocks analyzed here, this company has been the best performer as it is up on the year. The recent price drop in the last month is how the stock is being reflected as technically oversold on an RSI basis.
For the second company, we have CYS Investments Inc. (CYS). It trades on the NASDAQ. It is in the real estate operations industry. It has a market capitalization of $2.1 billion and is currently trading at $11.79 per share. Over the past 52 weeks, the stock is down 10.82%. It currently pays a dividend of $1.60 per year, giving it a current yield of 13.6%. It has a trailing p/e ratio of 5.09. This is the lowest p/e ratio out of the four companies analyzed here.
CYS Investments is a real estate investment trust. An important thing to note here is that the company is a corporation and not a limited partnership. In that regard, the tax treatment is the same as regular companies and the annual disbursements to shareholders for this company are dividends and not distributions. Since CYS Investments is a REIT, it must distribute 90% of its taxable income every year to shareholders as a dividend. CYS Investments also declared a special dividend this year as well. When factoring in dividends, the company did produce a positive return for investors this year, albeit a relatively small one compared with some REITs. For example, Apollo Commercial Real Estate Finance (ARI) is up 16.5% over the past 52 weeks. I discussed that stock in a recent article here. A good sign for CYS Investments is that there has been a reasonable amount of insider buying this year.
Next up, we have Darden Restaurants Inc. (DRI). It trades on the NYSE. It is in the restaurants industry. It has a market capitalization of $5.7 billion and is currently trading at $44.44 per share. Over the past 52 weeks, the stock is down 2.82%. It currently pays a dividend of $2.00 per year, giving it a current yield of 4.5%. It has a trailing p/e ratio of 12.7 and a forward p/e ratio of 11.79.
Darden Restaurants is in the business of operating restaurants. Its brand names include Olive Garden and Red Lobster restaurants. I love Olive Garden. It is estimated to earn $3.39 per share this year and $3.77 per share next year. This company has proven restaurants that are popular. It is trading near its 52-week low of $43.80, as it is at $44.44 as of December 30, 2012. Its 52-week high of $57.93 presents a potential upside of 30.36% from current levels if it can reach that again. Other authors have also highlighted this company as a potential rising star in 2013, such as in this article. Credit Suisse recently cut Darden's price target and earnings estimates, which may be one of the reasons that the stock is trading toward the lower end of its 52-week range. With such an established company, this may be a great buying opportunity. When McDonald's (MCD) was at a similar price level in its 52-week range fairly recently, that is when I purchased shares.
Finally, we have Herbalife Ltd. (HLF). It trades on the NYSE. It is in the personal and household products industry. It has a market capitalization of $3.2 billion and is currently trading at $29.39 per share. Over the past 52 weeks, the stock is down 44.06%. It currently pays a dividend of $1.20 per year, giving it a yield of 4.1%. It has a trailing p/e ratio of 7.6 and a forward p/e ratio of 6.45. This stock price has been hammered this year more than any other stock that is analyzed in this article.
Herbalife sells weight management and nutritional supplement products. The stock went up 3.85% on Friday, December 28, 2012. This was a sigh of relief for long investors as the company has come under pressure lately. Bill Ackman recently announced that he shorted the company and called the company a "pyramid scheme." That announcement caused the shares of the company to take a 12% tumble in price on that day. Its 52-week high is $73, so a move back up to that price level would bring a return in excess of 100% from here. The company is profitable, and with the recent drop in the stock price, the dividend yield is up to 4.1%. With this pressure in the stock price recently, an investment in this stock is certainly not for an investor who does not want to take on any risk. With the price fluctuations, this definitely looks like the kind of stock that can go up or go down 10% in a day easily. In brighter news for the stock, the company has beaten eps estimates in all three quarters of 2012 so far. Additionally, it is forecast to earn $4.56 per share in the following fiscal year. 2012 dividends have easily been covered by free cash flow. Technically, based on this, the company appears to be sound.
Although the four companies have not performed well versus the S&P 500 in 2012, the following is a chart for the past three years.
AJG data by YCharts
In this chart, over the past three years three of the four stocks outperformed the S&P 500. When factoring in dividends, the performance is even better.
This concludes this article on technically oversold dividend stocks. I think this should provide a great list of stocks for you to conduct further research on should you want to choose any of these stocks for your portfolio.
Disclosure: I am long MCD.