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Investors are often fearful of buying statistically cheap stocks because such investments can prove to be "value traps," stocks that remain cheap for a frustratingly long time. The best way to avoid value traps is to find companies whose intrinsic value grows over time so that they become ever cheaper if the stock price remains unchanged. Another approach is to try to identify specific catalysts that are likely to cause investors to revalue a stock at some point in the not-too-distant future. Yet another approach is to buy stocks that pay a nice dividend yield, providing income while the investor waits for the market to revalue the shares. We recently looked for such companies, and here are the highlights:

Bristol Myers Squibb (BMY) ($29 per share; MV $49 billion; EV $48 billion) is a pharma giant that derives roughly two-thirds of sales from North America, with most of the remainder from Europe. Sales of the company's key drug Plavix increased 8% from $6.1 billion in 2009 to $6.7 billion in 2010, while total revenue increased 4% in the period. The Street expects Bristol Myers to earn $2.20 per share in 2011 (13x P/E), with $2.05 (14x) and $1.99 (15x) in subsequent years. The annual dividend of $1.32 per share, an increase of 2% from a year ago, implies a yield of 4.6%.

Eli Lilly (LLY) ($37 per share; MV $43 billion; EV $43 billion) is a major pharma company, with franchises in neuroscience (e.g., Zyprexa, Cymbalta), endocrinology (e.g., Humalog), oncology (e.g., Alimta), and cardiovascular products (e.g., Cialis). Worldwide sales of key drug Zyprexa increased 2% from $4.9 billion in 2009 to $5.0 billion in 2010, while total revenue increased 6% to $23.1 billion during the same period. The sell side expects Lilly to earn $4.27 per share in 2011 (9x P/E), followed by $3.70 (10x) and $3.94 (9x) in subsequent years. The annualized dividend of $1.96 per share implies a yield of 5.3%. Lilly has boosted the dividend five times in seven years, delivering an annualized growth rate of 5%.

PDL BioPharma (PDLI) ($5.80 per share; MV $803 million; EV $1.2 billion), based in Incline Village, NV, manages a portfolio of antibody humanization patents and royalty assets and receives royalties on sales of a number of humanized antibody products marketed today; it also may receive royalty payments on additional humanized antibody products launched before final patent expiry in 2014. The sell side expects PDLI to earn $1.18 per share in 2011 (5x P/E), followed by $1.36 (4x) and $1.54 (4x) in subsequent years. The dividend of $0.60 per share implies a yield of 10%.

Sanofi-Aventis (SNY) ($37 per share; MV $101 billion; EV $104 billion) is the fifth-largest pharma company in the world and the third-largest in Europe, with franchises in diabetes, oncology and other products as well as vaccines. Sales of the key diabetes drug Lantus rose 14% from $3.1 billion in 2009 to $3.5 billion in 2010, while revenue increased 4% during the same period. Analysts expect Sanofi to earn $4.80 per share in 2011 (8x P/E), with $4.45 (8x) and $4.17 (9x) in subsequent years. The annual dividend of $1.76 per share, off -2% from a year ago, implies a yield of 4.7%. The company has raised the dividend six times in the past seven years, resulting in average annual dividend growth of 17%.

MIND C.T.I. (MNDO) ($2.70 per share; MV $51 million; EV $36 million), based in Yoqneam, Israel, provides convergent billing and customer care products for wireless, wireline, VoIP and quad-play carriers. Sales of licenses increased 7% from $6.1 million in 2009 to $6.6 million in 2010, while total revenue rose 13% in the same period. The company has $15 million of net cash (30% of recent market value) and $15 million of tangible book value. The annual dividend of $0.32 per share implies a yield of 12% (unclear if it is covered on a forward basis due to a lack of earnings estimates). The company has boosted the dividend three times in the past seven years, with a CAGR of 13% for the period.

Telefonica (TEF) ($23 per share; MV $104 billion; EV $180 billion) is a leading provider of fixed and mobile telephony services in Spain, the rest of Europe, and Latin America. The customer base, measured in terms of total accesses, increased 9% from 265 million in 2009 to 288 million in 2010, while revenue increased 7% during the same period. Analysts expect Telefonica to earn $2.53 per share in 2010 (9x P/E), with $2.51 (9x) and $2.46 (9x) in each of the next two years, respectively. The annual dividend of $1.97 per share, an increase of 6% from a year ago, implies a yield of 8.6%. Telefonica has upped the dividend five times in the past seven years, resulting in average annual dividend growth of 26% for the period. Superinvestor Bruce Berkowitz initiated a new position in Telefonica for The Fairholme Fund in Q1.

Pengrowth Energy (PGH) ($12 per share; MV $4.0 billion; EV $5.1 billion), based in Calgary, Canada, is an oil and gas E&P company focused on the provinces of Alberta, British Columbia, Saskatchewan and Nova Scotia. 2P net reserves increased 9% from 240 million in 2009 to 261 million in 2010, while revenue rose 15% during the period. The annual dividend of $0.86 per share, an increase of 9% from a year ago, implies a yield of 7.0% (unclear if it is covered on a forward basis due to a lack of earnings estimates).

Pitney Bowes (PBI) ($22 per share; MV $4.5 billion; EV $8.1 billion), based in Stamford, CT, provides mail processing equipment and integrated mail solutions. Small and medium-sized business solutions revenue decreased 5% from $2.9 billion in 2009 to $2.8 billion in 2010, while total revenue decreased 3% to $5.4 billion during the period. Analysts expect Pitney Bowes to earn $2.28 per share in 2011 (10x P/E), followed by $2.30 (10x) and $2.42 (9x) in subsequent years. The annualized dividend of $1.48 per share, an increase of 1% from a year ago, implies a yield of 6.7%.

Vodafone (VOD) ($26 per share; MV $134 billion; EV $184 billion) provides mobile telephony services globally. The number of mobile customers rose 15% from 324 million in the fiscal year ended March 31, 2010 to 371 million in FY11, while revenue increased 3% in the period. Wall Street expects Vodafone to earn $2.59 per share in FY12 (10x P/E), followed by $2.70 (10x) and $3.21 (8x) in subsequent years. The dividend of $1.44 per share implies a yield of 5.5%. The company has raised the dividend six times in the past seven years, with a CAGR of 21%.

Wal-Mart (WMT) ($52 per share; MV $182 billion; EV $228 billion) is synonymous with discount retailing in the U.S. and increasingly also globally. The company operates in three segments: Wal-Mart U.S. (62% of fiscal 2011 sales), Sam's Club U.S. (12%), and Wal-Mart International (26%). Wal-Mart U.S. segment sales stayed roughly flat, going from $259.9 billion in the fiscal year ended January 31, 2010 to $260.3 billion in FY11, while total revenue increased 3% to $422 billion in the same period. The Street expects Wal-Mart to earn $4.47 per share in FY12 (12x P/E), followed by $4.91 (11x) and $5.43 (10x) in subsequent years. The annual dividend of $1.46 per share, an increase of 21% from a year ago, implies a yield of 2.8%. The company has raised the dividend six times in the past seven years, delivering an annualized growth rate of 19% during the period.

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

Source: 10 Undervalued Companies Paying You While You Wait for Their Valuations to Grow