Everyone likes an underdog to some degree. When it comes to investing though this doesn't always come into play as often given that individual investor's tend to stick with what ever investing style they are most confident with currently. We often ask though why can't an investor have both? Better yet how about one that pays investors to take on the risk as well? In our view reviewing dividend underdogs kills two birds with one stone. Today we've identified a group of dividend paying companies that are worth reviewing because while they look like underdogs from a price-multiple valuation they still hold strong profitability.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
Return on Assets (ROA) illustrates how much a firm is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the firm's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
We first looked for dividend stocks trading at a discount (P/E<10). From this narrowed list of candidates we then looked for companies that have strong profitability relative to their asset base (ROA (TTM)>15%). We did not screen out any sectors or market caps.
The list is ranked from highest to lowest by the P/E ratio:
1. Microsoft Corporation (MSFT)
|Industry||Software - Infrastructure|
Microsoft Corporation develops, licenses, and supports a range of software products and services for various computing devices worldwide. MSFT has a dividend yield of 2.39% & a P/E of 9.75. The company's ROA (TTM) is 21.30%. The short interest was 1.00% as of 10/14/2011.
2. KLA-Tencor Corporation (KLAC)
|Industry||Semiconductor Equipment & Materials|
KLA-Tencor designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries. KLAC has a dividend yield of 2.33% & a P/E of 9.68. The company's ROA (TTM) is 16.99%. The short interest was 7.50% as of 10/14/2011.
3. Mosaic Co. (MOS)
The Mosaic Company engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide. MOS has a dividend yield of 0.34% & a P/E of 9.62. The company's ROA (TTM) is 15.93%. The short interest was 4.20% as of 10/14/2011.
4. ExxonMobil (XOM)
|Industry||Oil & Gas Integrated|
ExxonMobil engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products. XOM has a dividend yield of 2.29% & a P/E of 9.58. The company's ROA (TTM) is 10.07%. The short interest was 1.00% as of 10/14/2011.
5. Strayer Education, Inc. (STRA)
|Industry||Education & Training Services|
Strayer Education, Inc., through its subsidiary, Strayer University, provides post-secondary education services for working adults. STRA has a dividend yield of 4.37% & a P/E of 9.41. The company's ROA (TTM) is 31.80%. The short interest was 26.00% as of 10/14/2011.
6. BHP Billiton Ltd. (BHP)
|Industry||Industrial Metals & Minerals|
BHP Billiton, together with its subsidiaries, operates as a diversified natural resources company worldwide. BHP has a dividend yield of 2.55% & a P/E of 9.27. The company's ROA (TTM) is 22.98%. The short interest was N/A as of 10/14/2011.
7. Diamond Offshore Drilling, Inc. (DO)
|Industry||Oil & Gas Drilling|
Diamond Offshore Drilling, Inc., together with its subsidiaries, operates as an offshore oil and gas drilling contractor worldwide. DO has a dividend yield of 0.77% & a P/E of 8.93. The company's ROA (TTM) is 14.20%. The short interest was 15.70% as of 10/14/2011.
8. PDL BioPharma, Inc. (PDLI)
PDL BioPharma, Inc. engages in the management of antibody humanization patents and royalty assets, which consist of Queen et al. PDLI has a dividend yield of 7.12% & a P/E of 8.85. The company's ROA (TTM) is 29.01%. The short interest was N/A as of 10/14/2011.
9. AVX Corporation. (AVX)
AVX Corporation, together with its subsidiaries, manufactures and supplies passive electronic components and interconnect products in the Americas, Europe, and Asia. AVX has a dividend yield of 1.80% & a P/E of 8.76. The company's ROA (TTM) is 10.52%. The short interest was 2.00% as of 10/14/2011.
10. DeVry, Inc. (DV)
|Industry||Education & Training Services|
DeVry Inc., together with its subsidiaries, provides educational services worldwide. DV has a dividend yield of 0.63% & a P/E of 8.46. The company's ROA (TTM) is 17.85%. The short interest was 2.10% as of 10/14/2011.*Company profiles were sourced from Finviz.
We hope this list helps as investors do their own due diligence and research on dividend stocks. Company profiles were sourced from FinViz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.