The price-to-tangible-book-value ratio excludes intangible assets and goodwill. When stock is trading below its tangible book value per share, it might be considered undervalued.
I have searched for profitable companies that pay rich dividends with a low payout ratio and that are currently trading below their tangible book value. Those stocks would have to also show a low debt.
I used the Portfolio123's powerful screener to perform the search. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Portfolio123, Yahoo Finance and finviz.com, on September 20, 2013, before the market open.
The screen's formula requires all stocks comply with all following demands:
- The stock does not trade over-the-counter (OTC).
- Price is greater than 1.00.
- Market cap is greater than $100 million.
- Dividend yield is greater than 3.0%.
- The payout ratio is less than 100%.
- Total debt to equity is less than 1.0.
- Price to tangible book value is less than 1.0.
As shown in the chart below, 14 stocks came out, as a result, (the number of stocks left after each demand can be seen in the chart). In this article, I describe three of these stocks, which in my opinion can reward an investor a capital gain along a very rich dividend.
International Shipholding Corp. (ISH)
International Shipholding Corporation provides maritime transportation services to commercial and governmental customers primarily under the medium to long-term time charters or contracts of affreightment in the United States and internationally.
Source: company presentation
International Shipholding has a very low trailing P/E of 12.01 and a forward P/E of 15.66. The price-to-sales ratio is very low at 0.70, and the price to tangible book value is also very low at 0.80. The forward annual dividend yield is quite high at 3.77%, and the payout ratio is only 45%.
The ISH stock price is 4.73% above its 20-day simple moving average, 6.38% above its 50-day simple moving average and 32.06% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
Analysts recommend the stock. Among the two analysts covering the stock, one rates it as a strong buy, and one rates it as a buy.
On July 31, International Shipholding reported its second-quarter financial results. EPS came in at $0.17 or $0.15 below expectations.
Second-Quarter 2013 Highlights
- Reported net income of $1.9 million for the three months ended June 30, 2013
- Priced $27.5 million of 9% Series B Cumulative Redeemable Perpetual Preferred Stock on July 25, 2013
- Declared a second-quarter dividend of $0.25 per share of common stock payable on September 4, 2013 to shareholders of record as of August 16, 2013
- Paid a $2.375 per share dividend on its Series A Preferred Stock on July 30, 2013
The chart below, which was taken from the company presentation, emphasizes the significant and consistent quarterly dividend.
International Shipholding has compelling valuation metrics and considering the fact that the stock is in an uptrend, ISH stock still has room to go up. Furthermore, the rich dividend represents a nice income.
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy and a decline in sea freight rates.
Banc of California, Inc. (NYSE:BANC)
Banc of California, Inc. operates as a bank holding company for Pacific Trust Bank and Beach Business Bank that provides retail banking services to individuals and small to mid-sized businesses.
Banc of California has no debt at all, and it has a low trailing P/E of 14.76 and a very low forward P/E of 8.97. The PEG ratio is very low at 0.98, and the price to tangible book value is also very low at 0.87. The price-to-cash ratio is extremely low at 0.34, and the average annual earnings growth estimates for the next five years is high at 15%. The forward annual dividend yield is quite high at 3.61%, and the payout ratio is at 61%. The annual rate of dividend growth over the past three years was very high at 24.29%, and over the past five years was negative at -8.17%.
Analysts recommend the stock. Among the seven analysts covering the stock, two rate it as a strong buy, four rate it as a buy, and only one rates it as a hold.
Banc of California has recorded strong revenue, EPS and dividend growth, during the last three years, as shown in the table below.
On August 7, Banc of California reported its second-quarter financial results, which beat EPS expectations by $0.11. The company reported net income and earnings available to common stockholders of $4.36 million or $0.36 per diluted common share. This compares with net income available to common stockholders of $641 thousand, or $0.05 per diluted common share, for the first quarter ended March 31, 2013, and net loss available to common stockholders of $1.05 million, or ($0.09) per diluted common share, for the preceding second quarter ended June 30, 2012.
Banc of California has recorded improvement in its Tier 1 ratio and in net charge-offs, as shown in the chart below.
Source: company presentation
Banc of California has compelling valuation metrics and strong earnings growth prospects, and considering its latest quarter's strong results, BANC stock can move higher. Furthermore, the rich dividend represents a nice income.
Since the company is very rich in cash ($39.26 a share) and has no debt and its payout ratio is low, there is hardly a risk that the company will reduce its dividend payment. Risks to the expected capital gain include a downturn in the U.S. economy, and a decline in its net interest margin of 3.93%.
IAMGOLD Corp. (NYSE:IAG)
IAMGOLD Corporation engages in the exploration, development, and operation of mining properties. Its products include gold, silver, niobium and copper deposits.
Source: company presentation
IAMGold has a very low debt (total debt to equity is only 0.18), and it has a trailing P/E of 15.24 and a low forward P/E of 14.73. The price-to-cash ratio is very low at 3.95, and the price to tangible book value is also very low at 0.64. The forward annual dividend yield is high at 4.32%, and the payout ratio is at 66%. The annual rate of dividend growth over the past three years was very high 60.91%, and over the past five years was also high at 32.99%.
IAMGold has recorded strong revenue, EPS and dividend growth during the last three years and the last five years, as shown in the table below.
On August 12, IAMGOLD reported its second-quarter financial results, which missed EPS expectations by $0.01 and missed on revenues.
Second-Quarter 2013 Highlights
- Attributable gold production was 224,000 ounces (including 10,000 pre-commercial ounces from Westwood); attributable sales were 201,000 ounces.
- Total cash costs for all gold mines were $787 an ounce, below the bottom of the guidance range.
- All-in sustaining costs for all gold mines were $1,196 an ounce.
- With 55% of cost reduction target achieved and on track to reaching $100 million target by end of 2013, [the company is] lowering:
- Total cash costs 2013 guidance for all gold mines to $790-$840 an ounce from $850-$925 an ounce.
- All-in sustaining costs 2013 guidance for all gold mines to $1,150-$1,250 an ounce from $1,200-$1,300 an ounce.
- Production guidance of 875,000 to 950,000 ounces for all gold mines maintained for 2013.
- Westwood ramping up and on track to meeting 130,000-150,000 ounce production target for 2013.
- Adjusted net earnings attributable to equity holders were $30.2 million, or $0.08 per share.
- Reported net losses attributable to equity holders were $28.4 million, or $0.08 a share, inclusive of $39.3 million in impairment charges related to marketable securities and equity accounted investments (at market value).
- Net cash from operating activities before changes in working capital was $68.3 million, or $0.18 per share.
- Ended the quarter with cash, cash equivalents and gold bullion (at market value) of $607.9 million.
- Maintained semi-annual dividend of $0.125 per common share.
IAMGold has recorded strong revenue, EPS and dividend growth, and considering its cheap valuation metrics, IAG stock can move much higher once the gold bull market resumes. Furthermore, the rich dividend represents a nice income.
Risks to the expected capital gain and to the dividend payment include a further decline in the price of gold.
Disclosure: I am long IAG. 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.