I feel that in order to see substantial gains in the market, one must do substantial research in order to find stocks that are being sold at a true "value." A momentarily bad quarter and shifting market sentiment has pushed the market low, on some stocks more than on others.
When looking for stocks that are “undervalued” there are several facts one can dissect, and even speculation can be used. Whatever method used to find stocks that are considered undervalued, one popular method is PEG (Price/Earnings to Growth). I like to use this ratio because unlike the P/E, it takes into account growth. Below I have screened four stocks that I believe to be undervalued given their >1 PEG. Not only are they undervalued, but these stocks are offering dividend yields of 10% or greater and have a higher payout ratio than the average. Another reason I like dividend investing is because it provides a steady stream of income to live off, whether it is monthly or quarterly. Below are 4 stocks that pay dividends and are excellent companies to consider for a steady stream of income and steady growth:
Cellcom Israel Ltd. (CEL) is a provider of cellular communications services in Israel. Cellcom offers a range of cellular services through its cellular networks. These services include basic and advanced cellular telephone services, text and multimedia messaging services and advanced cellular content and data services. As of December 31, 2010, the Company also offers international roaming services in 179 countries. The current market price is $15.5 with a one-year analyst price target of $94.21. This represents an uncanny 507.81% upside potential.
Not only is the one-year target estimate 507.81%, but the dividend yield is 10.52% with a 72% payout ratio. The dividend is paid quarterly and amounts to $0.51. Not only is the dividend yield excellent, but the PEG ratio is 0.5 (five year expected), which shows the company is undervalued at current levels.
Sales, EPS, cash from operating activities, gross profit, ROE, and ROA have been on the rise for the past five years which is a good indication of both consistent and future growth.
|Year to Year Growth Rate||2006||2007||2008||2009||2009|
|Cash from Operating Act.||16.12%|
The five-year EPS growth rate for CEL is 20.84% beating out the industry average of 5.89% and the sector average of 9.07%. Also compared to its direct competition, CEL has an EPS of 2.81, MSI is at 3.7 and PTNR is 1.57. Overall CEL has performed exceptionally well and this is reflected through its pattern of growth and fueled by its dividend. This is one undervalued stock to truly consider for both growth and dividends.
Portugal Telecom SGPS SA (PT) is a Portugal-based telecommunications operator. Together with its subsidiaries, it is engaged in rendering a range of telecommunications and multimedia services in Portugal and other countries or regions, including Brazil and Africa. The current market price is $5.60 with a one-year analyst price target of $8.73. This represents a 55.89% upside potential not including its dividend yield of 15.9%. The dividend is paid annually and the five year average is 6.2% with an above average payout ratio.
PT has struggled this past year and has a 52-week change of -46.54% which puts it right at its 52-week low with the high being $12.69. For fiscal year 2011, analysts estimate that PT will earn $0.89. For fiscal year 2012, analysts estimate that PT's earnings per share will grow by 16% to $1.03. Also, PT’s MACD indicates a Bullish Trend. I believe this combination allows for a turnaround in a very big way for this company.
Portugal Telecom has an extremely low PEG (five year expected) of 0.12 compared to its peers: AMX has a PEG of 0.98 and VOD with a PEG of 1.27. PT also has a quarterly revenue growth of 83.50% (yoy) compared to AMX which has 7.5% and VOD with 4.1%. Overall this stock has underperformed in 2011, but its strong growth potential looms over 2012 and its dividend yield of 15.9% cannot be ignored.
Banco Santander, S.A. (STD) is a financial group operating principally in Spain, the United Kingdom, Portugal, other European countries, Brazil and other Latin American countries and the United States, offering a range of financial products. It operates in four segments: Continental Europe, United Kingdom, Latin America and Sovereign. The current market price is $7 with a one-year analyst price target of $9.52. This represents a 36% upside potential. The 36% upside potential does not include its hefty dividend of $0.18 that is paid quarterly and amounts to 10.29% yield. The dividend is above its five-year average of 4.5%, but the stock price is much lower than its five-year average and the payout ratio is above average at 75%.
Compared to its peers Banco Santander’s five-year EPS growth rate is slightly higher at -0.11%, where the industry average for regional banks is -1.17%. The financial sector on the other hand outperforms with a five year EPS growth rate of 2.85%. STD’s direct competition C and HBC both have higher net income and a larger market cap. STD has a PEG of 0.58 where C has one of 0.6 and HBC’s is 0.39. It seems like STD compares about evenly with its industry, however its dividend yield is unmatched.
STD has an upward slope regarding its ten and twenty-one-day moving average which signifies a bullish trend. Also, Moving Average Convergence/Divergence (MACD) indicates a Bullish Trend. For fiscal year 2011, analysts estimate that STD will earn $1.09. For fiscal year 2012, analysts estimate that STD's earnings per share will grow by 16% to $1.26. With an upward momentum this excellent dividend yield will not last long. I believe Banco Santander is undervalued at current prices and should see a substantial rise in price this year.
TICC Capital Corp. (TICC) is non-diversified, closed-end investment company. TICC is a specialty finance company principally providing capital to primarily non-public, small and medium-sized, technology-related companies. Its investment objective is to maximize its portfolio's total return, principally by investing in the debt and/or equity securities of technology-related companies. The current market price is $8.8 with a one-year analyst price target of $11. This represents a 25% upside potential. TICC also sports an 11.4% dividend yield. The last four payments have been $0.24 on March 17, 2011, $0.25 on June 14, 2011, $0.25 on September 14, 2011, and $0.25 on December 14, 2011 respectively.
The PEG (five-year expected) for this company is 0.61. Another factor that indicates this company is undervalued is its five-year EPS growth rate of 14.14% compared to its peers in the Misc. Financial Services Industry whose five-year EPS growth rate is only 7.31% (roughly half). One more major fact to consider is TICC has no long-term debt which leaves a substantial amount of capital for future investments and growth.
TICC is currently floating towards the bottom of its 52-week range, but is showing signs of recovering. The PEG ratio aside, MACD indicates a Bullish pattern and the chart pattern indicates an upward trend. Both the ten and fifty-day moving averages signal upward momentum.
Overall, this company has seen its dark days in 2011, and I feel with its excellent dividend and growth potential should see a substantial rise in price to a fair value of $11 giving investors over a 30% return in one year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.