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How many stocks do you know that trade at a forward P/E multiple of less than 3?

I’m guessing not too many. Even the cheapest blue chip stocks in the Dow Jones index (Pfizer (NYSE:PFE), JP Morgan Chase (NYSE:JPM) and Hewlett Packard (NYSE:HPQ)) all trade at a future P/E multiple of over 8.

Value investors that focus just on domestic stocks will never find this cheap stock. Growth investors will just ignore it altogether. However, for diligent dividend investors, it’s hard not to take a second, and even third look at what may be the cheapest Israeli dividend stock.

The stock is Cellcom Israel (NYSE:CEL).

As its name suggests, Cellcom Israel is a telecom stock. In fact, it’s the leading Israeli mobile company, with a 34% market share and over 3.3 million subscribers.

Cellcom Israel is certainly not a growth stock. In fact, since Israel is a mature mobile market, revenues are expected to dip by 3% in 2011. However, Cellcom Israel has a strong track record of exceeding earnings estimates over the past few quarters, so don’t turn bearish yet.

While Cellcom Israel may not be a spectacular growth story, it certainly is an impressive cash flow machine. The company operates with 40% EBITDA margins and has generated over $265 million in operating cash flow through the first 9 months of 2010.

In addition to the stock’s cheap valuation and strong cash flows, the other eye-catching metric for Cellcom Israel is their dividend yield. The stock offers an amazing 11.1% dividend yield and has the cash flow to continue to support it.

For investors looking for a high yield stock with strong cash flows on the cheap, you won’t find it in AT&T (NYSE:T) or Verizon (NYSE:VZ). In fact, Verizon is currently one of the most expensive Dow stocks. And both of those telecom stocks offer less than a 6% dividend yield. Cellcom Israel can be had for less than 3x P/E multiple and offers an amazing double-digit dividend yield.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: The Cheapest Israeli Dividend Stock