Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message| ()  

Do you prefer stocks that pay handsome dividend income? For a closer look at dividend stocks of the large-cap sector, we ran a screen.

We began by screening the large-cap sector for stocks paying dividend yields above 2% and sustainable payout ratios below 50%.

We then screened for those stocks that appear undervalued relative to their cash flows, indicated by high ratios of levered free cash flow/enterprise value.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares. When companies have ratios of levered free cash flow/enterprise value in excess of 10%, it may indicate that the company as a whole is being undervalued.

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

1. ACE Limited (ACE): Provides a range of insurance and reinsurance products to insureds worldwide. Market cap at $27.97B, most recent closing price at $82.32. Levered free cash flow at $4.62B vs. enterprise value at $31.97B (implies a LFCF/EV ratio at 14.45%). Dividend yield at 2.38%, payout ratio at 24.3%.

2. AFLAC Inc. (AFL): Provides supplemental health and life insurance. Market cap at $24.4B, most recent closing price at $52.04. Levered free cash flow at $4.62B vs. enterprise value at $32.37B (implies a LFCF/EV ratio at 14.27%). Dividend yield at 2.69%, payout ratio at 21.83%.

3. Dell Inc. (DELL): Provides integrated technology solutions in the information technology (IT) industry worldwide. Market cap at $19.06B, most recent closing price at $10.97. Levered free cash flow at $2.61B vs. enterprise value at $16.83B (implies a LFCF/EV ratio at 15.51%). Dividend yield at 2.92%, payout ratio at 5.33%.

4. General Dynamics Corp. (GD): Provides business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding, and communications and information technology products and services worldwide. Market cap at $25.09B, most recent closing price at $71.07. Levered free cash flow at $3.26B vs. enterprise value at $26.14B (implies a LFCF/EV ratio at 12.47%). Dividend yield at 2.87%, payout ratio at 29.63%.

5. MetLife, Inc. (MET): Provides insurance, annuities, and employee benefit programs primarily in the United States, Japan, Latin America, the Asia Pacific, Europe, and the Middle East. Market cap at $39.22B, most recent closing price at $35.95. Levered free cash flow at $10.47B vs. enterprise value at $64.05B (implies a LFCF/EV ratio at 16.35%). Dividend yield at 2.06%, payout ratio at 36%.

6. Northrop Grumman Corporation (NOC): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap at $16.88B, most recent closing price at $68.76. Levered free cash flow at $2.50B vs. enterprise value at $17.28B (implies a LFCF/EV ratio at 14.47%). Dividend yield at 3.2%, payout ratio at 26.77%.

7. Statoil ASA (STO): Engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products. Market cap at $81.18B, most recent closing price at $25.46. Levered free cash flow at $11.55B vs. enterprise value at $85.88B (implies a LFCF/EV ratio at 13.45%). Dividend yield at 4.19%, payout ratio at 25.41%.

8. The Travelers Companies, Inc. (TRV): Provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. Market cap at $28.25B, most recent closing price at $74.06. Levered free cash flow at $7.70B vs. enterprise value at $30.81B (implies a LFCF/EV ratio at 24.99%). Dividend yield at 2.48%, payout ratio at 25%.

9. Time Warner Inc. (TWX): Operates as a media and entertainment company in the United States and internationally. Market cap at $46.75B, most recent closing price at $49.37. Levered free cash flow at $10.52B vs. enterprise value at $63.43B (implies a LFCF/EV ratio at 16.59%). Dividend yield at 2.11%, payout ratio at 38.25%.

*Free cash flow data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 9 Large-Cap Dividend Stocks Undervalued By Levered Free Cash Flow