We have found five "low-key" dividend stocks that are now yielding well above their five-year average dividend yields. The payout ratios on all of these stocks are below 50%. The fact that these stocks are now yielding over their five-year average dividend yields suggests that recent over-reactions and market turmoil have forced the price down unjustifiably.
We like to focus on relatively low-key and under-the-radar stocks that have little Wall Street following. The reason is that for these stocks it is much more likely that mis-pricing occurs.
The first pick on our list is IAMGOLD Corporation (NYSE:IAG), which pays a 3.5% dividend yield, compared to the five-year average dividend yield of only 1%. What's more is that the dividend payout is only 28% of earnings -- the lowest of the five stocks listed.
IAG is a mining company that includes interests in five operating gold mines, a niobium mine, a diamond royalty, and exploration and development projects located in Africa and the Americas. What's positive about this stock is its industry tailwinds.
The outlook for gold is robust, with the price of gold having seen a steady increase since 2001. Continuing to drive the stock and industry higher will be the fact that the Fed plans to keep short-term interest rates near zero through 2014. What's more is that volatility in major economies should promote further quantitative easing by central banks, further lifting gold prices.
IAG also trades below the industry on a price to cash flow and price to book basis (see how IAG stacks up against competitors). IAG trades at 6 times cash flow and 0.7 times book value, while industry comps trade at 10 times and 1.2 times, respectively. The gold company also has a low-beat (low-volatility) at only 0.4. IAG has also managed to grow its dividend payment by an annualized 28% over the last five years.
Ternium (NYSE:TX) pays a 3.7% dividend yield, which is well above its 2.4% five-year average dividend yield. The company has also managed to grow its dividend by 8.4% annualized over the last five years. The company has been pressured downward as global economic slowdowns have led to steel demand decreases, but Ternium is a great way to play small steel (see why here).
Ternium is a Luxembourg-based steel company in Latin America that manufactures and processes a range of products for construction, home appliance and automotive industries. Fitch Ratings has a solid outlook for Latin America in 2013, based on a continuation of favorable demand in the region. Other big tailwinds for Latin America includes population growth and a strengthening middle class for the country.
Ternium has one of the best balance sheets in the steel industry with a 13% long-term debt to capital ratio and its dividend payment is also only a 30% payout of earnings. The one key to note on this stock is its 2.3 beta, which can lead to a bit more volatility than some investors are comfortable with.
The Western Union Company (NYSE:WU) pays a 3.4% dividend yield, well above its five-year average dividend yield of 1.3%. The payout is also the lowest among the five at only 25%. The company has managed to grow its dividend payment by an annualized 8.5% over the last five years and is also a considered a growth at a reasonable price opportunity with a PEG ratio of only 0.8 (see all five cheap dividends).
Western Union is the money movement and payment services company that most people have used once or twice in their lives, and if not, they have at least seen its retail locations at some point. The company expects full-year 2013 EPS in the range of $1.33 to $1.43, while also expecting to return nearly $700 million to shareholders in 2013 in the form of share repurchases and dividends.
Western Union is expanding internationally, namely the emerging markets of China and India. The company should perform well on the back of a rebounding economy, but also see growth from some of its digital initiatives, which involves payment processing partnerships with banks.
The stock has traded in a P/E range between 7 and 23 over the last five years; the stock now trades near the very low-end of that range at 8.7 times earnings. What's more is that any sort of comparable company trades above 20 times earnings, including Fiserv (20x), Heartland Payment (20x) and FleetCor Technologies (30x). Hedge funds have been snapping up the stock of late (see which ones).
Delhaize Group (NYSE:DEG) pays a 4% dividend yield, with one of the highest payout ratios at 50%, but still well in "safe" range; meaning the stock's dividend is well covered by earnings. Its 4% dividend yield is well above its 3.4% 5-year average dividend yield.
Delhaize is a Belgium-based food retailer, operating supermarkets in Belgium, the U.S., Greece, Serbia, Bosnia and Herzegovina, Albania, Montenegro, Bulgaria, Romania and Indonesia. What's more is the company operates a variety of grocery chains you likely have shopped at but didn't know Delhaize owned, including Food Lion, Bottom Dollar Food, Harveys, Sweetbay, Bloom and Hannaford supermarkets in the United States; Delhaize, Proxy, Red Market, Shop 'n Go and Tom & Co in Belgium and Luxembourg.
Compared to some of the other major supermarkets, Delhaize has one of the best balance sheets with a long-term debt to capital ratio of 30%, compared to Kroger's 56% and Safeway's 60%. From a valuation standpoint, the company trades relatively in line with major peers on a price to sales basis, but its dividend sets it apart. At a 4% dividend yield, no other major food retailer can compete: Kroger's is only 1.8%, Safeway's 2.7%, Harris Teeter's 1.5%, Ingles 3% and Whole Foods' 0.9%.
S.Y. Bancorp (NASDAQ:SYBT) pays a 3.6% dividend yield, well above its 3% five-year average dividend yield. The payout ratio is also on the low-end, around 41%. This regional bank is also a small-cap stock at a $300 million market cap.
S.Y. Bancorp is a regional bank holding company of Stock Yards Bank & Trust Company. The bank provides commercial and personal banking services in the Louisville, Kentucky, Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets.
Despite the financial crisis, according to S&P, the regional bank group is performing well and saw net revenues up 8.6% last quarter from a year ago. The regional banks are also seeing net interest income increases thanks to faster loan growth. S&P's regional bank group saw loans up 1.9% in 4Q from 3Q. The bank also has a low beta at 0.5 and a low debt load with a long-term debt to capital ratio of 13%.
In the end
All five of the above stocks operate in a variety of industries, offering investors the chance to jump into the stock at uncommonly high historical levels. Most are under-the-radar picks, which is an area we like to look to in order to find mis-priced stocks.
IAG should perform nicely on the back on continued low interest rates, while Ternium will perform well on a bolstering Latin America economy. Western Union and Delhaize should perform nicely as the global economy rebounds and S.Y. Bancorp has a niche position in the regional bank industry.