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Research has shown that stocks with low price-to-book-value have less downside risk than the average stock and tend to outperform the overall market average as well.

I have searched for very profitable companies with very low price-to-book value that pay very rich dividends. Those stocks would have to show also a very low P/E.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance and finviz.com. The screen's formula requires all stocks to comply with all following demands:

  1. The forward dividend yield is greater than 5.0%.
  2. The payout ratio is less than 50%.
  3. Price-to-book value is less than 1.00.
  4. Trailing P/E is less than 10.
  5. Forward P/E is less than 10.

After running this screen on July 11, 2013, before the market open, I discovered the following three stocks:

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Arlington Asset Investment Corp. (NYSE:AI)

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets.

Arlington Asset Investment has a very low long-term debt (long-term debt to equity is only 0.03) and it has an exceptionally low trailing P/E of 1.77 and a very low forward P/E of 6.24. The price-to-book-value ratio is extremely low at 0.63. The forward annual dividend yield is very high at 14.12%, and the payout ratio is only 25%.

Analysts recommend the stock. Among the four analysts covering the stock, two rate it as a strong buy, one rates it as a buy, and one rates it as a hold.

AI will report its latest quarterly financial results on July 29. AI is expected to post a profit of $1.08 a share, a 7% decline from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

The compelling valuation metrics, the very rich dividend, and the fact that the stock is selling way below book value are all factors that make AI stock quite attractive.

AI Price / Tangible Book Value Chart

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Chart: finviz.com

KKR Financial Holdings LLC (KFN)

KKR Financial Holdings LLC, together with its subsidiaries, operates as a specialty finance company with expertise in a range of asset classes.

KKR Financial Holdings has no long-term debt at all, and it has a very low trailing P/E of 5.67 and a very low forward P/E of 6.67. The PEG ratio is very low at 0.57, and the average annual earnings growth estimates for the next five years is quite high at 10%. The price-to-book-value ratio is very low at 0.84. The forward annual dividend yield is very high at 8.05%, and the payout ratio is only 46%.

Analysts recommend the stock. Among the five analysts covering the stock, three rate it as a strong buy, one rates it as a buy, and one rates it as a hold.

KFN will report its latest quarterly financial results on July 22.

The very low multiples, the very rich dividend, and the fact that the stock is selling way below book value are all factors that make KFN stock quite attractive.

KFN Price / Tangible Book Value Chart

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Chart: finviz.com

Newmont Mining Corporation (NYSE:NEM)

Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration and production of gold and copper properties.

Newmont Mining Corporation has a low debt (total debt to equity is only 0.46) and it has a very low trailing P/E of 8.21 and a very low forward P/E of 9.36. The price-to-book-value ratio is very low at 0.95. The forward annual dividend yield is very high at 5.26%, and the payout ratio is only 43%. Although the last dividend rate ($0.35 on June 10) was less than the previous rate ($0.425 on March 11), the average annual rate of dividend growth over the past five years was very high at 28.5%.

NEM will report its latest quarterly financial results on July 25. NEM is expected to post a profit of $0.49 a share, a 17% decline from the company's actual earnings for the same quarter a year ago.

All these factors - the very low multiples, the very rich dividend, the fact the company consistently has raised dividend payments, and the fact that NEM stock is selling below book value -- make NEM stock quite attractive.

NEM Price / Tangible Book Value Chart

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Chart: finviz.com

Source: 3 High-Yielding Dividend Stocks With A Very Low Price-To-Book Value