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For some investors, it’s important to look for a strong dividend history when searching for potential stocks since dividend investing is a tried and true strategy for steady returns in uncertain times.

But equally important is also acquiring them at a bargain.

Here are three stocks that are undervalued according to their growth price by using a 15% discount rate as well as a strong history of dividends.

More information on each stock’s dividend history can be found through the links at the bottom of each stock analysis.

Occidental Petroleum Corporation (NYSE:OXY)

Occidental Petroleum Corporation operates as an oil and gas exploration and production company primarily in the United States.

OXY has a modest yield, minimal debt and better earnings growth than its peers. With growing earnings, OXY could afford to continue raising its dividend given its earnings growth. (source)

Pro:

  • Undervalued by 42.12% according to growth price (FCF). Growth rate assumed by market is 0.31%.
  • Good management of cash. Positive free cash flow has been growing while cash return on invested capital has been improving over the years.
  • Strengthening balance sheet. Debt-to-equity ratio is 12% while its interest is covered 31 times.

Con:

  • For OXY, a particular concern is the civil war in Libya. In the past, foreign companies were required to provide 90% of their output to Libya’s state-run oil company. If they can renegotiate these deals, OXY will benefit greatly. However, analysts say that production might not return to pre-crisis levels until 2013. (source)

Dividend Yield:

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See our full report here on 10 years of OXY’s dividend history.

Telefonos de Mexico (NYSE:TMX)

Telefonos de Mexico provides telecommunications services primarily in Mexico by offering local telephone service, domestic and international long distance services and interconnection services to long-distance, local and mobile phone carriers.

Pro:

  • Undervalued by 51.45% according to growth price (FCF).
  • Economic moat has been consistently maintained with a healthy net profit margin of 13.55% and strong pricing power over the years with a gross margin of 60.14%.
  • Strong history of stock buybacks over the years. 1.07% of stock bought back in 2010.

Con:

  • Balance sheet has been growing steadily weaker since 2007. TL-to-TA 0.72 in 2010.
  • Mexico’s antitrust regulator said last Wednesday that TMX’s dominance in the market for completion of phone calls to fixed lines opens up the possibility of asymmetrical regulations and tariffs. (source)

Dividend Yield:

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See our report here on 10 years of TMX’s dividend history.

Harte-Hanks (NYSE:HHS)

Harte-Hanks operates as a direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to local, regional, national and international customer and business-to-business marketers.

Trillium Software, a business of Harte-Hanks, announced an agreement with AIR Worldwide, the scientific leader and most respected provider of catastrophe risk modeling software to provide more precise geocoding through the integration of Trillium Software’s geospatial capabilities. This will improve data quality to the risk assessment of earthquake, cyclones, flood and terrorism. (source)

Pro:

  • Undervalued by growth price (FCF) and stability price by 68.62% and 75.43%, respectively.
  • Excellent return on equity at 12.24% in 2010.
  • Positive free cash flow has been consistently exceptional since 2001.

Con:

  • Economic moat is weakening. Its net profit margin (6.23%) has been thinning as well as capital expenditure ratio (32.55%) has been increasing over the years.
  • Retained earnings growth has been declining since 2008 and has reached 2.83% in 2010.

Dividend Yield:

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See our report here for 10 years of HHS’ dividend history.

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

Source: 3 Undervalued Stocks With A Strong Dividend History