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With rates at historical lows, the current market has been a great environment for seeking out solid dividends. We have found five dividend stocks that have "safe" dividends (all have a payout ratio of less than 35%), but are also undervalued -- having a PEG of less than 2.0. Although the dividend yields range from 2% to 3.1%, they all have been growing their dividend payments by at least 20% annually over the last five years.

  • Union Pacific Corporation (UNP) pays a 2% dividend yield, where the company has grown its dividend by 25% over the last five years. What makes the rail company even more compelling is the rail company's PEG ratio of 1.2, on top of only a 27% payout ratio.

S&P expects the rail industry tonnage to grow by an annualized rate of 1.5% through 2020. The U.S. rail industry is dominated by a few players with notable pricing power, with over 88% of revenues generated by the four largest railroads, including CSX and Norfolk Southern Corp. on the East Coast, and Union Pacific Corp. and Burlington Northern Santa Fe Corp. on the West Coast.

Energy accounts for 20% Union's freight revenues and is a major transporter of coal, with 65% of its energy traffic consisting of coal primarily delivered to power utilities. Meanwhile, its intermodal business represented 20% of freight revenue, industrial products category 18% of freight revenues,and chemicals (16%), agricultural products (17%) and automotive contributed (9%) -- a somewhat diversified freight revenue stream that appeals to me.

Union Pacific's big plans includes the goal for the company to maintain an operating ratio in the 65% to 67% range by the end of 2015, where the company achieved an operating ratio of just below 70% in 2012.

Union Pacific also provides investors with an impressive return on invested capital, averaging 14.7% over the five years, compared to 13.1% for the industry.

  • CSX Corporation (CSX) is another cheap railroad stock, with a PEG of 1.1. This rail company pays a 2.4% dividend yield on a 33% payout of earnings. Over the last five years, the company has managed to grow its dividend at 23% annually.

Railroads simultaneously compete for customers while cooperating by sharing assets, interfacing systems, and completing customer movements, but I like the fact that Union Pacific is on the West Coast, and CSX on the East, it means less competition for the two. Much like Union Pacific, CSX will benefit from economic recovery in the U.S.

The positive for CSX is that a rebounding economy will help its largest customers, large freight integrators, automotive and coal. Coal accounts for around 25% of the rail company's revenues and auto for 10%. Much like Union Pacific, CSX has managed to see above average returns on invested capital. However, CSX well outpaces Union Pacific in this category. CSX has grown ROIC from 8.7% in 2005 to its current 18%.

  • TE Connectivity Ltd. (TEL) pays a 2% dividend yield and has a 32% payout ratio, not to mention having grown 25% annually over the last five years. TE also has a PEG ratio of 1.4.

TE Connectivity operates as a global provider of engineered electronic components, network solutions and wireless systems. TE reported December-ended EPS of $0.65, beating consensus by $0.03. Upcoming 2013 growth should be driven by improvements in the automotive and smartphone/tablet markets. TE also has a return on equity in surplus of the industry, with a return on equity of 16%, compared to the industry average of 5%.

  • The Men's Wearhouse, Inc. (MW), the specialty retailer, pays a 2.6% dividend yield, which is also the lowest payout ratio of 19%. Over the last five years the dividend has grown at 25% annually, and its PEG ratio is only 1.3.

The specialty retailer has been surviving the economic sluggishness nicely with its tuxedo rental and big and tall businesses. The big news of late includes the fact that the company has hired Jefferies & Co. to evaluate "strategic alternatives" for its K&G operations. This would be a big positive for the company, helping increase profitability by shedding the struggling K&G line, which also saw comp sales down over 5% last quarter year over year.

The company posted company-wide EPS of $0.07, compared to a $0.07 per share loss from the same quarter last year, which would have been even greater without K&G -- where the K&G segment recorded a $0.07 per share earnings loss last quarter.

  • Tupperware Brands Corporation (TUP) pays the highest dividend yield at 3.1% on only a 27% payout of earnings. As well, the company has managed to grow its dividend at 23% annually, and has a PEG of 1.9.

Tupperware is a major seller of products across multiple brands, namely its storage and serving products, with an independent sales force of over 2.7 million. Tupperware remains an emerging markets growth story, with upcoming growth expected to come from its emerging market areas of South America and Asia.

While the company's largest segment, Europe, has been a drag on the company of late, the notable transition toward emerging markets should help hedge its reliance on developed markets going forward. Tupperware hopes to generate upwards of 60% of sales from emerging markets going forward.

Management is already expecting sales growth of 5% to 7% and a 12% to 14% increase in EPS for 2013. As far as its dividend, the company upped its quarterly payment by 72% in January, while also upping its share repurchase authorization to $2.0 billion from $1.2 billion.

The five stocks above all pay a solid dividends that have been growing robustly over the past five years. What makes them even more attractive is the fact that they companies appear to be undervalued on a PEG basis. The rail stocks should be a solid way to collect dividends going forward, but a couple of other places to find under priced dividend stocks is in the specialty retail (Men's Wearhouse), electronic components (TE) and storage containers (Tupperware).

Source: 5 Underpriced Dividend Stocks