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To create the stock list below we began with a universe of stocks offering a dividend of at least 1%, but not more than 5%. This allowed us to focus on companies with a strong credit profile.

We continued our analysis by looking at the financial statements of all qualifying companies for those with low leverage. We looked for companies with a debt-to-equity ratio of less than 0.1. When analyzing the balance sheet we focused on the total debt of the company instead of only long-term debt.

We then looked for those that appear undervalued relative to EPS trends. Based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred. We screened for those exhibiting this mismatch between changes in EPS estimate and price.

The List

Our analysis of the financials left us 3 companies with encouraging EPS trends and debt-to-equity of less than 0.1.

Interactive Chart: Press Play to compare changes in 1-year return for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these dividend stocks are attractive? Use this as a starting point for your own analysis.

1. E-House (CHINA) Holdings Limited (NYSE:EJ): Operates as a real estate services company in China.

  • Market cap at $558.09M, most recent closing price at $4.68.
  • Dividend yield at 3.2%, and debt-to-equity at 0
  • The EPS estimate for the company's current year increased from 0.34 to 0.39 over the last 30 days, an increase of 14.71%. This increase came during a time when the stock price changed by 1.95% (from 4.62 to 4.71 over the last 30 days).
  • More on earnings: The company's earnings growth looks weak, with EPS falling by -868.08% over the last year. But EJ has a higher than average projected earnings growth rate over the next 5 years (34.45%). This is higher than the likes of Brookfield Properties Corporation (projected EPS growth over next 5 years at 1.80%) and Icahn Enterprises, L.P. (projected EPS growth over next 5 years at 0.0%).

2. Nevsun Resources Ltd. (NYSEMKT:NSU): Engages in the acquisition, exploration, development, and production of mineral properties.

  • Market cap at $756.24M, most recent closing price at $3.91.
  • Dividend yield at 2.6%, and debt-to-equity at 0.
  • The EPS estimate for the company's current year increased from 0.36 to 0.4 over the last 30 days, an increase of 11.11%. This increase came during a time when the stock price changed by 8.99% (from 3.45 to 3.76 over the last 30 days).
  • Bonus: Nevsun has a low short float compared to industry averages, suggesting perhaps that short sellers see limited downside in the stock. The company's short float stands at 0.30%, much lower than Newmont Mining Corp. (short float at 3.23%, representing 2.26 days of trading volume) and Yamana Gold (short float at 0.74%, representing 0.87 days of trading volume).

3. Sturm, Ruger & Co. Inc. (NYSE:RGR): Engages in the design, manufacture, and sale of firearms in the United States.

  • Market cap at $994.66M, most recent closing price at $52.13.
  • Dividend yield at 3.1%, and debt-to-equity at 0.
  • The EPS estimate for the company's current year increased from 3.48 to 3.7 over the last 30 days, an increase of 6.32%. This increase came during a time when the stock price changed by 0.55% (from 52.33 to 52.62 over the last 30 days).
  • Furthermore, the company has reported strong earnings growth over the last year, with EPS growing by 72.17%, higher than industry competitors like United Technologies Corp. (EPS growth over the last year at 0.42%) and Boeing Co. (EPS growth over the last year at -4.07%).
  • Be warned: RGR has returned -1.12% since 2/25/13, and is one of the worst performing stocks in its industry. Short sellers signal there's more downside to the stock, especially when comparing short float to industry averages. RGR short float stands at 30.27%, which is equivalent to 10.29 days of average trading volume. As an example, this is much higher than industry competitors United Technologies Corp. (short float at 1.21%, representing 3.03 days of trading volume) and Boeing Co. (short float at 1.28%, representing 1.46 days of trading volume).

*EPS data sourced from Yahoo! finance, all other data sourced from Finviz.

Source: 3 Low-Debt Small Cap Dividend Stocks Undervalued By EPS Trends