5 Dividend Stocks In Underappreciated Industries

Includes: CRH, RCI, STO, WU
by: Being Unordinary

These are not your father's dividend portfolio picks. The five stocks listed below include stocks that have been pushed down unjustly. The portfolio beta of the five stocks comes in at 1.12, and it generated an alpha of 4.85% in 2012. The purpose of owning the stocks is not for what they did in 2012, but what they can do in 2013 and beyond. I hope to find picks that are not only great additions to a dividend portfolio but have underlying growth opportunities. The thesis behind owning these stocks is not just the dividend; price appreciation is a big part of growing a portfolio. The approach lies in finding the top companies in fundamentally strong, but underperforming, industries. So if you are looking for some overlooked industry leading dividend picks continue reading.

The Western Union Company (NYSE:WU) pays a 3.6% dividend yield. The market for payment outsourcing has been growing as the electronic transaction becomes the norm for both in-person and online purchases. Despite the easing of consumer credit in the U.S., Western Union remains down over 25% for the trailing twelve months. The company has been implementing a number of restructuring efforts in hopes of boosting sales; this includes better consumer pricing and investing in digital technologies.

Although the payments market is rather developed in the U.S., Western Union has vast market opportunities in emerging markets, in particular, China and India. The company plans to add 200K locations in China and India over the near-term. This will add to Western Union's already robust network of 5M locations spread over 200 countries. Some of the big ideas that should help drive its 9% earnings growth over the long term (as estimated by the Street) is partnerships with various banks - where Western Union will be the primary processor for various transactions. As far as the stock's dividend is concerned, it is well covered. The stock has one of the lowest payout ratios around at 18% and it has grown its dividend by over 60% during the last five years. Looking at valuation: The stock trades with a PEG of only 0.7 and right at its lowest P/E (7x) over the last five years.

Statoil ASA (NYSE:STO) pays a dividend yield of 4.18%. The oil and gas industry should treat its operators well over the near term. These companies are known for generating solid cash flow and throwing that off in the form of dividends and Statoil is no different. The industry has been under siege lately as natural gas prices tumbled due to unusually warm weather, one key driver of energy and fuel consumption, which drives oil and gas demand. Statoil is one of the leading suppliers of natural gas to the European markets. We like the future that natural gas has, including in the U.S., where Statoil continues to expand in the popular Bakken area. Statoil also has a 21% stake in the world's largest offshore pipeline network - Gassled. The network transports natural gas from the North Sea to the European gas transmission system.

The Norwegian oil and gas Statoil has a very solid reserve replacement history, which indicates the company's ability to add proven reserves in relation to what it produces. The organic reserve replacement was 100% for 2011, versus 87% in 2010. The three-year average reserve replacement ratio is now up to 92%. Statoil is also attractive from a valuation point of view. Its five-year average price-to-earnings ratio is 10x, but currently it has a P/E of 5.5x on TTM earnings and 8.8 on next year's earnings. Taking it a step further, its EV/EBITDA is at a 55% discount to the industry average of 3.7x.

Rogers Communications Inc. (NYSE:RCI) pays a 3.54% dividend yield, which comes with an impressive return on equity of 46% and low debt, having a debt-to-equity ratio of 2.9 compared with the industry average of 5.6. The wireless industry is expected to see solid growth, especially in an underdeveloped Canadian market, compared with the U.S. Rogers is a diversified Canadian media and telecom company. Its wireless segment grew revenue 3% year over year during Q3-2012 and smartphone activations were up 16% year over year. Rogers is trading at 14.4x price-to-earnings (TTM), but its five-year average is around 19x. Even on next year earnings, its price-to-earnings ratio is 14.3x. The average P/E on 2013 earnings estimates suggests the stock is undervalued as much as 40%.

CRH plc, (NYSE:CRH) pays one of the highest dividends of the stocks included, with a 4% yield. CRH is another company that should perform well as global GDP grows. Global is expected to be up 3.6% in 2013, after being up 3.3% in 2012. The diversity of CRH's product mix is impressive, manufacturing cement, concrete products, aggregates and other building materials. What adds to the diversity of the company is its international presence. CRH has a presence in Europe, North American, Argentina, Chile, India and China. CRH has showed a solid history of generating earnings and cash flow. Earnings grew 60% from 2004 to 2007 and only slightly declined in the recession years of 2008, 2009 and 2010. The dividend per share has been relatively flat over the past few years and an increase could be in the works, with the company generating nearly $1B in operating cash flow over the past 12 months and holding $1.5B in cash on hand. Compared with the industry, CRH is still one of the cheap stocks. CRH has a price-to book ratio of 1.1x (industry average at 2.1x) and a price-to-operating cash flow ratio of 7.6x (industry average 12.7x).

If you are looking for some lesser followed, less accurately priced stocks, look no further than the five above. All the stocks pay a dividend in excess of 3% and are some of the industry leaders in industries with room to grow over the interim.

Disclosure: I am long CRH, WU, RSG, RCI, STO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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