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If you’re looking for stocks paying dividend income that also have the potential for capital gains, here’s an idea you may find interesting.

One way to search for potentially undervalued stocks is by comparing price with analyst target prices. Of course, analyst prices tend to be inflated most of the time, so we ran a screen that used the most pessimistic analyst target price as the benchmark for our analysis.

In addition, we only focused on companies that have more than 5 analyst target prices (to make sure we only focus on companies that have decent analyst coverage).

We screened stocks paying dividend yields above 3% and sustainable payout ratios below 50% for those trading at significant discounts to even the most pessimistic analyst target prices, suggesting that these stocks may be undervalued.

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.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month.

(Click chart for more detail)



Do you think these stocks will rise to their analyst target prices? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by target price.

1. First Commonwealth Financial Corp. (NYSE:FCF): Operates as the holding company for First Commonwealth Bank that provides consumer and commercial banking services to individuals and small and mid-sized businesses in central and western Pennsylvania. Market cap of $415.44M. Dividend yield at 3.03%, payout ratio at 23.20%. Of the 7 analysts that have set a target price on the stock, the lowest price target stands at $5.25. This implies a current upside of 28.99% from current levels around $4.07. The stock is a short squeeze candidate, with a short float at 7.8% (equivalent to 9.42 days of average volume). The stock has lost 29.79% over the last year.

2. Empresa Nacional de Electricidad S.A. (NYSE:EOC): Engages in the generation, transmission, production, and distribution of electricity in Chile, Argentina, Colombia, Peru, and Brazil. Market cap of $11.91B. Dividend yield at 4.70%, payout ratio at 39.47%. Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $56.00. This implies a current upside of 27.24% from current levels around $44.01. The stock has lost 16.78% over the last year.

3. Arcelor Mittal (NYSE:MT): Engages in the production and marketing of steel worldwide. Market cap of $29.22B. Dividend yield at 4.01%, payout ratio at 35.83%. Of the 7 analysts that have set a target price on the stock, the lowest price target stands at $24.50. This implies a current upside of 26.75% from current levels around $19.33. This is a risky stock that is significantly more volatile than the overall market (beta = 2.13). The stock has lost 45.23% over the last year.

4. SLM Corporation (NASDAQ:SLM): Provides education finance in the United States. Market cap of $6.68B. Dividend yield at 3.08%, payout ratio at 42.26%. Of the 7 analysts that have set a target price on the stock, the lowest price target stands at $17.00. This implies a current upside of 26.11% from current levels around $13.48. The stock has gained 18.31% over the last year.

5. The Toronto-Dominion Bank (NYSE:TD): Provides various banking and financial services in North America and internationally. Market cap of $65.21B. Dividend yield at 3.59%, payout ratio at 43.59%. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $91.00. This implies a current upside of 24.66% from current levels around $73.00. The stock has gained 1.75% over the last year.

6. Endurance Specialty Holdings Ltd. (NYSE:ENH): Engages in underwriting specialty lines of personal and commercial property and casualty insurance and reinsurance worldwide. Market cap of $1.30B. Dividend yield at 3.73%, payout ratio at 26.54%. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $40.00. This implies a current upside of 22.55% from current levels around $32.64. The stock is a short squeeze candidate, with a short float at 7.77% (equivalent to 7.43 days of average volume). The stock has performed poorly over the last month, losing 10.06%.

7. Protective Life Corp. (NYSE:PL): Engages in the production, distribution, and administration of insurance and investment products in the United States. Market cap of $1.51B. Dividend yield at 3.92%, payout ratio at 16.05%. Of the 8 analysts that have set a target price on the stock, the lowest price target stands at $20.00. This implies a current upside of 21.95% from current levels around $16.40. This is a risky stock that is significantly more volatile than the overall market (beta = 2.97). The stock has lost 26.7% over the last year.

8. Ternium S.A. (NYSE:TX): Engages in manufacturing and processing a range of flat and long steel products for construction, home appliances, capital goods, container, food, energy, and automotive industries. Market cap of $4.27B. Dividend yield at 3.52%, payout ratio at 7.94%. Of the 13 analysts that have set a target price on the stock, the lowest price target stands at $26.00. This implies a current upside of 21.72% from current levels around $21.36. This is a risky stock that is significantly more volatile than the overall market (beta = 2.2). The stock has performed poorly over the last month, losing 11.87%.

9. Validus Holdings, Ltd. (NYSE:VR): Provides reinsurance and insurance coverage in the property, marine, and specialty lines markets worldwide. Market cap of $2.53B. Dividend yield at 3.92%, payout ratio at 47.94%. Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $31.00. This implies a current upside of 21.66% from current levels around $25.48. The stock has lost 8.37% over the last year.

10. Enersis S.A. (NYSE:ENI): Engages in the generation, transmission, and distribution of electricity in Chile, Argentina, Brazil, Colombia, and Peru. Market cap of $11.91B. Dividend yield at 4.28%, payout ratio at 36.67%. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $22.00. This implies a current upside of 21.08% from current levels around $18.17. The stock has lost 19.93% over the last year.

11. Dime Community Bancshares Inc. (NASDAQ:DCOM): Operates as the holding company for The Dime Savings Bank of Williamsburgh that provides financial services and loans primarily for multifamily housing. Market cap of $389.55M. Dividend yield at 5.03%, payout ratio at 41.36%. Of the 8 analysts that have set a target price on the stock, the lowest price target stands at $14.00. This implies a current upside of 19.97% from current levels around $11.67. The stock has lost 21.01% over the last year.

12. Aircastle LTD (NYSE:AYR): Engages in the acquisition, lease, and sale of high-utility commercial jet aircraft to passenger and cargo airlines worldwide. Market cap of $800.89M. Dividend yield at 4.68%, payout ratio at 35.40%. Of the 8 analysts that have set a target price on the stock, the lowest price target stands at $13.00. This implies a current upside of 19.38% from current levels around $10.89. This is a risky stock that is significantly more volatile than the overall market (beta = 2.24). The stock has gained 27.57% over the last year.

13. Selective Insurance Group Inc. (NASDAQ:SIGI): Provides property and casualty insurance products in the United States. Market cap of $721.41M. Dividend yield at 3.90%, payout ratio at 42.96%. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $16.00. This implies a current upside of 18.52% from current levels around $13.50. The stock has lost 21.79% over the last year.

14. Cooper Tire & Rubber Co. (NYSE:CTB): Manufactures and markets replacement tires in North America and internationally. Market cap of $797.55M. Dividend yield at 3.28%, payout ratio at 23.13%. Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $15.00. This implies a current upside of 17.74% from current levels around $12.74. This is a risky stock that is significantly more volatile than the overall market (beta = 2.4). The stock has recently rebounded, and is currently trading 13.37% above its SMA20 and 12.02% above its SMA50. However, the stock still trades 35.03% below its SMA200. The stock has had a good month, gaining 15.72%.

15. Provident Financial Services, Inc. (NYSE:PFS): Operates as the holding company for The Provident Bank that provides banking services to individuals, families, and businesses in New Jersey. Market cap of $694.69M. Dividend yield at 4.18%, payout ratio at 48.77%. Of the 7 analysts that have set a target price on the stock, the lowest price target stands at $14.00. This implies a current upside of 16.96% from current levels around $11.97. The stock is a short squeeze candidate, with a short float at 7.59% (equivalent to 11.86 days of average volume). The stock has lost 9.03% over the last year.

16. EI DuPont de Nemours & Co. (NYSE:DD): Chemicals Industry. Market cap of $40.82B. Dividend yield at 3.75%, payout ratio at 44.94%. Of the 12 analysts that have set a target price on the stock, the lowest price target stands at $51.00. This implies a current upside of 16.52% from current levels around $43.77. The stock has lost 3.97% over the last year.

17. Steel Dynamics Inc. (NASDAQ:STLD): Engages in the manufacture and sale of steel products in the United States. Market cap of $2.38B. Dividend yield at 3.68%, payout ratio at 33.0%. Of the 13 analysts that have set a target price on the stock, the lowest price target stands at $13.00. This implies a current upside of 15.86% from current levels around $11.22. The stock has performed poorly over the last month, losing 10.17%.

18. BlackRock, Inc. (NYSE:BLK): Provides its services to institutional, intermediary, and individual investors. Market cap of $27.0B. Dividend yield at 3.65%, payout ratio at 23.76%. Of the 14 analysts that have set a target price on the stock, the lowest price target stands at $177.00. This implies a current upside of 15.20% from current levels around $153.65. The stock has lost 12.15% over the last year.

*Target price data sourced from Thomson/First Call (via Yahoo! Finance), 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: 18 Dividend Stocks Deeply Undervalued To Target Price