Seeking Alpha
Long/short equity, deep value, special situations
Profile| Send Message| ()  

With U.S. Treasuries paying out 3% on 30-year bonds, and the Fed maintaining plans to keep interest rates near historical lows through 2015, it's not a bad time to take a look at some solid dividend stocks that offer yields in excess of Treasuries and are solid.

What makes the five dividend stocks listed below special is that they not only offer a dividend yield of greater than 3.5% but they are also "cheap", in the sense that they have all have PEG ratios of less than 2.0, which offers investors solid price appreciation opportunities, in addition to income generation.

  • Bank of Hawaii Corporation (BOH) pays a 3.6% dividend yield on a payout of 48%. With a PEG of 1.8, this bank is an interesting pick.

Bank of Hawaii Corporation is a regional financial services company serving Hawaii, American Samoa and the West Pacific. The bank is the largest independent financial institution in Hawaii. The year 2012 brought about strong loan growth for the company, up 5.7% year over year. This has been driven by Hawaii's strong commercial mortgage sector thanks to continued robust tourism, despite a broad-based sluggish U.S. economy. Full year 2012 earnings were also impressive, with the bank posting EPS of $3.67, compared to 3.39 in 2011.

The capital structure is also impressive for the bank; its long-term debt to capital ratio is 17%, below major peers Central Pacific Financial's 23% and Oriental Financial Group at 32%.

Bank of Hawaii is an industry leader in a number of respects, including a higher allowance for loan losses with respect to nonperforming loans, a lower level of nonperforming loans as a percentage of total loans, and relatively low and stable non-interest expenses as a percentage of revenues. 2012 non-interest expenses fell 4.0%, outpacing the 1.8% revenue decline.

  • CA, Inc. (CA) is an IT company that pays a 4% dividend yield on a 40% payout ratio. The company also holds a PEG of 1.5.

CA is increasing its cloud exposure, which is a positive for the company. IDC has named CA as the market leader in cloud systems management. CA is also seeing growth in its record management business, which automates record-keeping processes to help users gain faster access to information, save resources and facilitate compliance with regulatory, legal and business requirements. Gartner estimates that the global record management market will grow at a compounded annual growth rate of 12% through 2014.

What's more is that a study conducted by Market Research Media, shows that the U.S. government's spending on cloud computing is expected to grow at an annual growth rate of 40% through 2015.

  • Statoil ASA (STO), an oil and gas company, pays a 4.3% dividend yield, with a less than 10% payout of earnings. Statoil also has the lowest PEG ratio of 0.7.

Statoil also maintains its agreement with Russian state-owned oil company OAO Rosneft (OTC:OJSCY). The agreement allows Statoil to jointly explore and develop Russian offshore deposits in the Barents Sea and Sea of Okhotsk.

Statoil aims to achieve an equity production of above 2.5 million barrels of oil equivalent in 2020. Management believes the company is on track to meet production targets in 2013; aiming for production a 2%-3% annual production growth target through 2016, and then 3%-4% through 2020.

  • The world's largest toy company, Mattel, Inc. (MAT), has a 3.5% dividend yield on a 35% earnings payout, coupled with a 1.8 PEG.

Mattel operates across various segments, including Mattel Girls & Boys Brands, Fisher-Price Brands, and American Girl Brands. A couple of its top brands remain Barbie and Hot Wheels. Another notable point is that the company achieved 50% gross margin expansion in 2012, this for the fourth time sequentially.

As the 3.5% dividend suggests, Mattel has a track record of returning cash to shareholders. Mattel's double digit growth in dividend payments has continued over the last several years. From 2009 to 2012, Mattel's EPS grew 17%, with dividends growing at 65%. Recently, Mattel announced a dividend increase of 16%.

Mattel trades at 14 times this year's earnings estimate, which is a significant discount to the industry (which includes Hasbro and Silverstar Holdings), at a 47% discount.

  • The turnaround apparel retailer, Guess?, Inc. (GES), has a 2.8% dividend yield, but the lowest payout among the five at 20% or earnings. Guess also has one of the lower PEG ratios at 1.2.

One of the first things about Guess worth mentioning is that the retailer has managed to grow its dividend payment at 20% annually.

Global expansion is expected to help drive Guess forward, where combined revenues outside of the U.S. and Canada represented half of the total company's revenues for 2012, compared to only 20% in 2005; a big positive for the company.

Guess also plans to diffuse into the fast-growing emerging markets like China, Brazil, Japan and India. Guess, as well, already has robust ecommerce platform. Long-term growth prospects for the company includes e-commerce, Asia, and emerging markets (namely China and India). Yet, Guess does trade cheaply when compared to major peers:

Price to Sales

  • Michael Kors (KORS) 6x
  • Ralph Lauren (RL) 2.3x
  • Express (LTD) 0.8x
  • Coach (COH) 2.7x
  • Guess? 1x

All five of the stocks above cover a variety of industries, and all have solid dividends, while also appearing cheap on a "growth at a reasonable price" standard (which includes a PEG ratio below 1.0). As well, all the companies have a healthy dividend, in that their dividend payouts (percent of earnings) are less than 60%.

Source: 5 Under The Radar Cheap Dividend Picks