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A high dividend growth rate can be a great sign for a company--dividend increases tend to signal that management is optimistic on future prospects.

There are, however, a few caveats to consider. High dividend yields (the dividend divided by share price) and high payout ratios (the dividend as a share of earnings) are less sustainable over time. If you want to rely on your stock’s dividend, look for dividend yields below 7% and payout ratios below 35%.

Here we ran a screen with these ideas in mind. We searched for stocks with at least 15% growth in dividend per share, comparing the trailing-twelve-month figure to the current year estimate. We then controlled for dividend yields between 2 and 7%, and payout ratios under 35%. Among these stocks, we found 16 that are also deeply undervalued by mean analyst target price (used as a proxy for fair value).

We admit that mean analyst target price generally suffers from an upward bias; however, when a stock is trading at a deep discount from target, it can indicate undervaluation.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.




Do you think these stocks have the operations to continue funding these dividends? Use this list as a starting-off point for your own analysis.

List sorted by discount from target price.

1. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX):
Copper Industry. Market cap of $44.91B. Current price at $48.60 vs. target price at $66.49 (implies a potential upside of 36.81%). Dividend yield at 2.11%, TTM payout ratio at 25.23%. Dividend per share estimate for current year at $1.63 vs. TTM dividend per share of $1.30. The stock has gained 41.61% over the last year. Click to enlarge:



2. JPMorgan Chase & Co. (NYSE:JPM):
Money Center Banks Industry. Market cap of $160.85B. Current price at $40.74 vs. target price at $55.05 (implies a potential upside of 35.13%). Dividend yield at 2.47%, TTM payout ratio at 9.36%. Dividend per share estimate for current year at $0.98 vs. TTM dividend per share of $0.40. The stock has gained 5.12% over the last year. Click to enlarge:



3. Newell Rubbermaid Inc. (NYSE:NWL): Housewares & Accessories Industry. Market cap of $4.66B. Current price at $15.19 vs. target price at $20.46 (implies a potential upside of 34.69%). Dividend yield at 2.12%, TTM payout ratio at 18.54%. Dividend per share estimate for current year at $0.27 vs. TTM dividend per share of $0.20. The stock has performed poorly over the last month, losing 17.38%. Click to enlarge:



4. Wausau Paper Corp. (NYSE:WPP): Paper & Paper Products Industry. Market cap of $295.57M. Current price at $6.20 vs. target price at $8.33 (implies a potential upside of 34.35%). Dividend yield at 2.00%, TTM payout ratio at 13.57%. Dividend per share estimate for current year at $0.12 vs. TTM dividend per share of $0.09. The stock is a short squeeze candidate, with a short float at 5.6% (equivalent to 7.23 days of average volume). The stock has performed poorly over the last month, losing 16.87%.

5. Knoll Inc. (NYSE:KNL): Business Equipment Industry. Market cap of $865.43M. Current price at $18.69 vs. target price at $25.00 (implies a potential upside of 33.76%). Dividend yield at 2.21%, TTM payout ratio at 21.60%. Dividend per share estimate for current year at $0.28 vs. TTM dividend per share of $0.16. The stock has had a couple of great days, gaining 6.98% over the last week.

6. The Bank of New York Mellon Corporation (NYSE:BK): Asset Management Industry. Market cap of $32.36B. Current price at $26.18 vs. target price at $34.32 (implies a potential upside of 31.09%). Dividend yield at 2.00%, TTM payout ratio at 16.99%. Dividend per share estimate for current year at $0.50 vs. TTM dividend per share of $0.36. The stock has gained 0.08% over the last year.

7. PNC Financial Services Group Inc. (NYSE:PNC): Money Center Banks Industry. Market cap of $29.82B. Current price at $56.58 vs. target price at $74.08 (implies a potential upside of 30.93%). Dividend yield at 2.47%, TTM payout ratio at 6.68%. Dividend per share estimate for current year at $1.08 vs. TTM dividend per share of $0.40. The stock has performed poorly over the last month, losing 10.02%.

8. Magna International, Inc. (NYSE:MGA):
Auto Parts Industry. Market cap of $11.66B. Current price at $49.31 vs. target price at $64.37 (implies a potential upside of 30.54%). Dividend yield at 2.08%, TTM payout ratio at 15.21%. Dividend per share estimate for current year at $0.78 vs. TTM dividend per share of $0.67. The stock has had a couple of great days, gaining 7.11% over the last week.

9. Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL): Restaurants Industry. Market cap of $249.52M. Current price at $15.00 vs. target price at $19.50 (implies a potential upside of 30.00%). Dividend yield at 3.34%, TTM payout ratio at 34.98%. Dividend per share estimate for current year at $0.40 vs. TTM dividend per share of $0.25. This is a risky stock that is significantly more volatile than the overall market (beta = 2.3). The stock has had a couple of great days, gaining 7.71% over the last week.

10. Rent-A-Center Inc. (NASDAQ:RCII): Rental & Leasing Services Industry. Market cap of $1.86B. Current price at $29.23 vs. target price at $37.63 (implies a potential upside of 28.74%). Dividend yield at 2.19%, TTM payout ratio at 6.96%. Dividend per share estimate for current year at $0.25 vs. TTM dividend per share of $0.18. The stock is a short squeeze candidate, with a short float at 8.28% (equivalent to 9.17 days of average volume). The stock has gained 31.84% over the last year.

11. International Paper Co. (NYSE:IP):
Paper & Paper Products Industry. Market cap of $12.0B. Current price at $28.61 vs. target price at $36.46 (implies a potential upside of 27.44%). Dividend yield at 3.83%, TTM payout ratio at 22.47%. Dividend per share estimate for current year at $0.94 vs. TTM dividend per share of $0.56. This is a risky stock that is significantly more volatile than the overall market (beta = 2.21). The stock has performed poorly over the last month, losing 13.36%.

12. The Interpublic Group of Companies, Inc. (NYSE:IPG):
Advertising Agencies Industry. Market cap of $5.60B. Current price at $11.67 vs. target price at $14.87 (implies a potential upside of 27.42%). Dividend yield at 2.10%, TTM payout ratio at 19.91%. Dividend per share estimate for current year at $0.23 vs. TTM dividend per share of $0.12. The stock has gained 39.13% over the last year.

13. Calamos Asset Management Inc. (NASDAQ:CLMS): Asset Management Industry. Market cap of $271.02M. Current price at $13.65 vs. target price at $17.38 (implies a potential upside of 27.33%). Dividend yield at 2.82%, TTM payout ratio at 32.37%. Dividend per share estimate for current year at $0.39 vs. TTM dividend per share of $0.32. This is a risky stock that is significantly more volatile than the overall market (beta = 3.21). The stock has gained 36.75% over the last year.

14. KKR Financial Holdings LLC (KFN): Asset Management Industry. Market cap of $1.74B. Current price at $9.77 vs. target price at $12.42 (implies a potential upside of 27.12%). Dividend yield at 6.55%, TTM payout ratio at 25.17%. Dividend per share estimate for current year at $0.80 vs. TTM dividend per share of $0.52. This is a risky stock that is significantly more volatile than the overall market (beta = 2.67). The stock has gained 28.05% over the last year.

15. STMicroelectronics NV (NYSE:STM): Semiconductor Industry. Market cap of $8.84B. Current price at $9.90 vs. target price at $12.52 (implies a potential upside of 26.46%). Dividend yield at 4.12%, TTM payout ratio at 23.36%. Dividend per share estimate for current year at $0.38 vs. TTM dividend per share of $0.25.The stock has performed poorly over the last month, losing 17.22%.

16. The Dow Chemical Company (NYSE:DOW): Chemicals Industry. Market cap of $41.10B. Current price at $35.70 vs. target price at $45.04 (implies a potential upside of 26.16%). Dividend yield at 2.86%, TTM payout ratio at 31.52%. Dividend per share estimate for current year at $0.86 vs. TTM dividend per share of $0.60. This is a risky stock that is significantly more volatile than the overall market (beta = 2.24). The stock has gained 32.27% over the last year.

*Dividend data sourced from Screener.co, target price and all other data sourced from Finviz.

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

Source: 16 High-Dividend Growth Stocks Deeply Undervalued by Target Price