The PEG Ratio - price/earnings to growth ratio is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.
A combination of a low PEG ratio and high yield seems to me quite attractive. After selecting a dividend yield of over 5%, and PEG ratio of under 1, in the finviz.com Screener, 35 stocks came out. In this article, I describe three of these stocks, which in my opinion can reward an investor a capital gain along with a very rich dividend. All the data for this article were taken from finviz.com and Yahoo Finance, on September 18, 2013, before the market open.
Agree Realty Corp. (ADC)
Agree Realty Corporation, a real estate investment trust (REIT), engages in the ownership, development, acquisition and management of retail properties, which are primarily leased to national and regional retail companies in the United States.
Source: company presentation [pdf]
Agree Realty Corporation has trailing P/E of 20.72 and a very low forward P/E of 19.85. The PEG ratio is very low at 0.96, and the average annual earnings growth estimates for the next five years is very high at 21.60%. The forward annual dividend yield is very high at 5.78%, and the payout ratio is at 107%.
Analysts recommend the stock. Among the five analysts covering the stock, two rate it as a strong buy, and three rate it as a hold.
On July 29, Agree Realty reported its second-quarter financial results. EPS came in at $0.51 in-line with expectations.
Second-Quarter 2013 Highlights
- Increased funds from operations for the quarter by 19%, year over year
- Increased adjusted funds from operations for the quarter by 18%, year over year
- Increased total revenues for the quarter by 26%, year over year
- Acquired four net leased properties for $28 million
- Delivered three net leased development projects to tenants
- Wal-Mart and Wawa became fourth and fifth largest tenants, respectively
- Paid $0.41 per share quarterly dividend on July 9, 2013
ATTRACTIVE & WELL COVERED DIVIDEND
- Annualized dividend of $1.64; current dividend yield of 5.78%
- 77 consecutive quarterly cash dividends since its IPO
- FFO Payout Ratio: 80%
- Targeted FFO Payout Ratio: 75 - 85
- Increased 2013 quarterly dividend during the first quarter by 2.5% to $.41 per share
Agree Realty Corporation has strong earnings growth prospects, and considering its cheap valuation metrics, ADC stock can move higher. Furthermore, the very rich growing dividend represents a gratifying income.
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and the company's debt of $157 million.
Giant Interactive Group, Inc. (GA)
Giant Interactive Group Inc. develops and operates online games in the People's Republic of China.
Source: company presentation [pdf]
Giant Interactive has no debt at all, and it has a very low trailing P/E of 12.15 and a very low forward P/E of 8.89. The PEG ratio is extremely low at 0.66, and the average annual earnings growth estimates for the next five years is very high at 18.37%. The forward annual dividend yield is high at 5.26%, and the payout ratio is at 62%. The annual rate of dividend growth over the past three years was very high at 18.56%.
The GA stock price is 8.52% above its 20-day simple moving average, 9.00% above its 50-day simple moving average and 27.70% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
Giant Interactive has recorded strong revenue growth, during the last year, the last three years and the last five years, as shown in the table below.
On August 6, Giant Interactive reported its second-quarter financial results, which beat EPS expectations by $0.02.
Second Quarter 2013 Highlights
- Net revenue was RMB588.1 million (US$95.8 million), up 2.7% QoQ and up 11.3% YoY.
- Gross profit was RMB517.0 million (US$84.2 million), up 5.4% QoQ and up 12.1% YoY. Gross profit margin for the second quarter 2013 was 87.9%.
- Net income attributable to the Company's shareholders was RMB367.6 million (US$59.9 million), up 12.7% QoQ and up 19.6% YoY. The margin of net income attributable to the Company's shareholders for the second quarter 2013 was 62.5%.
- Basic and diluted earnings per American Depositary Share ("ADS") which represents one ordinary share, were RMB1.53 (US$0.25) and RMB1.49 (US$0.24), respectively, compared to basic and diluted earnings per ADS of RMB1.36 and RMB1.32, respectively, for the first quarter 2013, and basic and diluted earnings per ADS of RMB1.30 and RMB1.26, respectively, for the second quarter 2012.
Cash Dividend. The company announced its semi-annual cash dividend for the first half of 2013, in the amount of $0.23 per ADS or ordinary share on its outstanding shares, which will be payable to shareholders of record at the close of trading in New York on December 12, 2013. The total cash payment associated with this dividend will be approximately $55.1 million. The payment amounts and dates are subject to, among other things, approval by the company's board of directors and compliance with applicable laws.
The chart below, which was taken from the company presentation, emphasizes the strong growth prospects of the Chinese online game market.
Giant Interactive has recorded strong revenue growth, and considering its compelling valuation metrics and the fact that the stock is in an uptrend, GA stock can move much higher. Furthermore, the very rich dividend represents a gratifying income.
Risks to the expected capital gain and to the dividend payment includes a decline in the acceptance of the company's games.
Northern Tier Energy LP (NTI)
Northern Tier Energy LP operates as an independent downstream energy company with refining, retail and pipeline operations in the United States.
Source: company presentation
Northern Tier Energy has a very low trailing P/E of 7.12 and a very low forward P/E of 5.21. The PEG ratio is extremely low at 0.15, and the average annual earnings growth estimates for the next five years is exceptionally high at 47%. The forward annual dividend yield is very high at 13.59%, and the payout ratio is at 97%.
On August 29, Northern Tier Energy reported its second-quarter financial results. EPS came in at $0.39 a $0.08 below expectations. Net income was $63.9 million compared to $245.6 million for the second quarter of 2012 and Adjusted EBITDA for the second quarter of 2013 was $85.9 million, a decrease of $160.4 million compared to $246.3 million for the second quarter of 2012. These decreases were driven by a 32% decline in refinery throughput due to planned turnaround activities that resulted in a full plant shutdown for part of the quarter. Tightened crude oil price differentials also contributed to the decrease in Adjusted EBITDA. See the table below for a full reconciliation of non-GAAP performance measures.
With this quarter's announced distribution, the company will have paid cumulative cash distributions to its unitholders of $4.66 per unit, which amounts to $429 million in the aggregate, since its IPO in July 2012.
Northern Tier Energy has very strong earnings growth prospects, and considering its compelling valuation metrics, Northern Tier Energy stock can move higher. Furthermore, the very rich growing dividend represents a gratifying income.
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, lower crude oil price differentials, and the company's debt of $282 million.