There are studies that show low-priced stocks have outperformed the market over time. If I combine low prices with with modest dividend yields, investors will experience substantial gains in the long run. Specifically, I have analyzed 5 dividend stocks that are trading below $20 a share with "buy" ratings from mainstream analysts. Further, these stocks have unique but temporary industry-related headwinds that the market is interpreting as disadvantageous. Instead, I see these headwinds, specifically slackened demand, as opportunities in the making. This gives an opportunity for value investors to pick up these shares at attractive prices.
Duke Realty Corp. (DRE) – The stock is a self-administered and self-managed real estate investment trust. It is one of the largest commercial real estate operations in the US, with estimated space of around 143 million square meters. It basically caters to industrial, office and medical office properties across 18 major cities. Recently it sold a majority of its suburban office building to Blackstone Group. The transaction was valued at $1 billion and is expected to be completed by December. I believe the proceeds will be partly reinvested into industrial buildings. The company’s goal is to have a bigger mix of industrial buildings in its portfolio.
The recent quarterly report is in line with expectations. It reported earnings per share of $0.29, slightly lower by 3% year-on-year. The decline is due to lower lease termination fees. It seems that the company will beat this year’s consensus per share earnings of $1.14. The current price implies a 10.94 times next year’s earnings and 5.90% dividend yield. In contrast, Brandywine Realty Trust (BDN) trades at 6.82 times earnings and has a dividend yield of 7%. Liberty Property Trust (LRY) is valued at 12.15 times earnings and carries a dividend yield of 6.20%. Meanwhile, DRE is trading below its multi-year lows. It would not take longer before the market will re-rate it.
Cablevision Systems Corp. (CVC) – Shares of this cable and media company have declined by 50% for the year. It is currently facing strong headwinds. There are reports that the company is losing video customers amid strong competition. Its short-term earnings growth appears slower. It has missed analyst expectations for the last four quarters. This is despite an increase in earnings in three straight quarters.
For this quarter, analysts expect earnings per share of $0.32. This is a decline of 13.5% quarter-on-quarter. If it could hit this quarter’s estimates, the company could beat this year’s consensus estimates of $1.21 per share earnings. The current price implies an 11.48 times next year’s earnings and has a dividend yield of 3.40%. This is somewhat similar to Time Warner Cable’s (TWC) valuation. Time Warner is valued at 11.60 times earnings and carries a dividend yield of 2.70%. Comcast Corp. (CMCSA) trades at 12.87 times earnings and has a dividend yield of 1.80%.
CVC recently purchased Bresnan Communications for $1.4 billion. This will definitely give the company a big boost in terms of infrastructure and growth potential. But based on current cash flows of the company, it’s a compelling investment.
Regal Entertainment Group (RGC) – This company operates multi-screen theaters in both mid-sized markets and suburban growth areas across the United States. Its shares have increased by 18.36% for the year. The market is particularly bullish about this stock. Even analysts have upgraded their ratings on the stock. They cited continued domestic box office growth as the main driver of the company’s performance.
It recently reported third-quarter per-share earnings of $0.19. This easily beats the consensus estimates of $0.15 earnings per share. Its management attributed the good financial results to strong industry attendance and cost control. Its shares are currently trading at 21.25 times next year’s earnings and carry a dividend yield of 6.5%. Peer company Cinemark Holdings (CNK) is valued at 12.10 times earnings and has a dividend yield of 4.30%, and Carmike Cinemas (CKEC) trades at 10.49 times earnings.
Regal will continue to reinvest into digital theaters in metropolitan cities. This will enhance future cash flows of the company. At present it is generating cash flow of $315 million this year. It’s possible that the company would declare a special dividend given its increasing cash flows. Given the recent run-up in shares, investors should accumulate when its share price pulls back.
Capstead Mortgage Corp (CMO) – This mortgage real estate investment trust (mREIT) earns its income from adjustable-rate mortgage securities. These ARMs are guaranteed by government-sponsored entities and agency of the Federal government. For the year, its shares have fallen by 4.10%. These types of investments have default risk, interest rate risks and prepayment risk. I note that the current risk for this investment is prepayment risk. When interest rates are low, security holders will exercise their rights to refinance the debt at lower interest rates.
The recent quarterly report appears to be disappointing. It reported earnings per share of $0.43, a decrease of 10% year on year. It also missed the consensus estimates of $0.45 per share earnings. An event like this gives will prompt investors to review the sustainability of its dividends. The current price implies a 7.41 times next year’s earnings and has a dividend yield of 14.30%. Other mREIT stocks trade lower. Chimera Investment Corp. (CIM) is valued at 6.14 times earnings and has a dividend yield of 17.80%. Meanwhile Annaly Capital Management (NLY) trades at 6.72 times earnings and carries a dividend yield of 14.4%. I suggest investors interested in mREIT stocks to have a diversified portfolio rather than betting on individual names.
Commercial Metals Co. (CMC) – Shares of this metal company have declined by 23% for the year. This is in line with the share performance of other metals companies. For example, AK Steel Corporation (AKS) is down by 46.55% for the year and Steel Dynamics (STLD) has fallen by 27%. The reason is lower steel prices and higher input costs. This will result in lower earnings in succeeding quarters. In fact, major steel companies gave a bearish outlook for the rest of the year.
The company reported quarterly adjusted per share earnings of $0.17. This beats estimate of $0.10 per share earnings. Its management also issued a bearish outlook. I believe that the recent exit from its Croatian steel pipe business will save a lot of cash flow in the future. The current price implies a 9 times next year’s earnings and has a dividend yield of 4.20%. AK Steel trades at 7.78 times earnings and carries a dividend yield of 2.70%. On the other hand, Steel Dynamics is valued at 8.99 times earnings and has a dividend yield of 3.20%. Activist investor Carl Icahn owns 10% of CMC. Investors are assured that management will do its best in the interest of its shareholders with the presence of an activist investor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.