In screening through the many thousands of investments, I set parameters to filter for high dividend yielding stocks that trade on low valuations, with likelihood of maintaining the current dividends.
In setting the parameters for the equities, I sought to minimize downside risk by buying into cheap valuations, while maintaining a healthy balance sheet to support future dividend payouts. I filtered through equities with current and forward P/E ratios of under 15, while Ideally being in the lower single digit ranges. By doing so, we could mitigate downside risk by buying into already cheap valuations, and increase our chances for P/E expansion, leading to capital gains.
I also filtered for equities with dividend yields of above 5%, to help create a nice income stream. Finally, in attempts to mitigate the chances of future dividend cuts, I looked for companies with current ratios above 2.0, which implied very strong balance sheets and a strong ability to pay current liabilities. With these parameters, and an outlook for dividend income, I believe the following equities seem attractive:
CVR Energy (NYSE:CVI)
"CVR Energy is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries" (CVR Energy Homepage).
CVR Energy trades at a bleak P/E ratio of 13.44 and forward P/E ratio of 11.0. Given an incredibly conservative 5-year EPS growth projection of 5.48% (Finviz), CVR trades at a PEG of 2.45 and under its share price of $58.2. The company also provides a dividend yield of 5.15% and will likely continue its payments because of its high liquidity, as pronounced by its current ratio of 2.81. Given its Price/Free Cash Flow of 9.18, CVR Energy trades at attractive valuations with a high dividend yield. To note though, its Beta of 1.98 places greater market risk on the stock, given a market downturn.
Hi-Crush Partners (HCLP)
"Hi-Crush Partners LP is a low-cost, domestic producer of premium monocrystalline sand, a specialized mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells" (MorningStar).
The company trades at a trailing P/E of 6.52, and forward P/E of 7.41. It has experienced strong sales growth of 27.90%, but an earnings decline of 23.39% Q/Q; however, earnings are projected to grow 9.13% this year. The company also has efficient utilization of its assets, as represented by its 49.91%, and has shown incredible profitability with its 72.92% gross margin and 57.55% profit margin.
Furthermore, the company's current ratio of 5.19 and quick ratio of 4.54 illustrate strong liquidity and an ability to continue paying its dividends, which are currently yielding 10.22%.
Strayer Education (NASDAQ:STRA)
"Strayer Education, Inc., through Strayer University, provides post-secondary education services for working adults. It offers undergraduate and graduate degrees in various fields, including business administration, education, and accounting, among others" (MorningStar).
Strayer is currently trading at a trailing P/E of 9.27 and forward P/E of 13.51, which is relatively undervalued for the industry. The company's gross margin of 45.49%, operating margin of 18.66%, and profit margin of 10.76% are mostly above that of its peer DeVry (NYSE:DV). With a current ratio of 2.16, the company seems amply able to maintain its current dividend stream, which is yielding 8.20%. To caution, though, Strayer has recently received downgrades to fair valuations of $39-$42/share from Barclays and Deutsche Bank. So, for the time being, keep this stock on your watch list for when it drops to more attractive valuations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.