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I feel that in order to see substantial gains in the market, one must do substantial research to find stocks that are being sold at a true "value." A momentary 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 is 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 5% 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 four stocks that pay dividends and are excellent companies to consider for a steady stream of income and steady growth:

TransAlta Corporation (NYSE:TAC) is a wholesale power generator and marketer with operations in Canada, the United States, and Australia. TransAlta owns, operates, and manages a contracted and geographically diverse portfolio of assets and utilizes a range of generation fuels, including coal, natural gas, hydro, wind, geothermal, and biomass. The current market price is $20.45 and is considered relatively safe given its 0.66 Beta. TAC currently offers a $0.29 dividend per quarter, yielding 5.67% and an above-average payout ratio of 77%. TransAlta's dividend is slightly higher than its five-year average of 4.30%, which signals its ability to raise the dividend yield and continue to pay.

Compared with its competitors TAC performs very well. Current EPS is 1.47 with a P/E of 14.05x far better than its direct competitor Calpine Corp (NYSE:CPN) with an EPS of -0.41. TAC also has a net income of $323.07M compared with CPN's -$363.00M. TAC has a one-year EPS growth rate of 34.52%. For the same period the Industry had a -19.04% EPS growth rate and the sector had -9.27%.

TransAlta's energy marketing unit strives to reduce market specific exposure, use market knowledge to help identify growth opportunities, maximize margins on non-contracted electricity sales, and reduce plant outage replacement power costs. I believe this is a good vision for growth for this company. The company also aims to have highly contracted capacity by contracting the fuel at the same time it contracts output in order to lock in bigger margins. In 2008, high natural gas prices helped keep power prices relatively high. This all changed when power prices fell dramatically in early 2009 and have remained relatively low following a drop in natural gas prices. The low prices have allowed for a great opportunity for huge growth. If prices would return to normal TAC would trade around $35, its historic price. I believe now is the time to invest while the stock is undervalued yet safe, and enjoy the dividends along the way.

TAL International Group, Inc. (NYSE:TAL) is a lessor of intermodal containers and chassis. The company has two segments: Equipment leasing, in which it owns, leases and disposes containers and chassis from its lease fleet, as well as manages containers owned by third parties, and Equipment trading, in which the company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container traders and users of containers for storage or one-way shipment. The current market price is $34.69 with a one-year analyst price target of $39.78. This represents a 14.67% upside potential not including its $0.52 quarterly dividend yielding an extra 6%. The five-year average yield of 5.50% combined with a higher-than-average payout ratio symbolizes the company is in good shape and its dividend payments should continue. The company's PEG of 0.88 shows that this dividend giant is undervalued at the current price.

The past six EPS reviews have been positive and the next release is February 13, when I expect another positive report. Current EPS is 3.4, which is substantially higher than the industry average of 0.96. TAL also has an operating margin of 58.06% compared with the industry's average of 19.70%. Finally, TAL's return on equity of 23.0% is substantially above the Specialty Financials Industry average of 7.1%. With continuous increasing dividend payments and no missed payments I think this is a great undervalued stock to sit on. Like TAC, I believe TAL also belongs in the mid $30s range (pre-2009), and on its rise you can enjoy its dividend payments.

Ameren Corporation (NYSE:AEE) is a utility holding company. The company's subsidiaries include Union Electric Company, Ameren Illinois Company and Ameren Energy Generating Company. The current market price is $31.49 with a book value of $33.02. This represents a 4.86% upside potential. This upside however, does not include its $0.40 quarterly dividend payment yielding 5.04% with a 68% payout ratio. NKA also boasts a PEG <1 putting it at a great buy opportunity.

Compared with its direct competitors AEE performs in-line or better. Ameren has a gross margin of 36.06% while its competition holds. CenterPoint Energy, Inc.(NYSE:CNP) is at 30.61%, Exelon Corporation (NYSE:EXC) at 34.18%, and Great Plains Energy Incorporated (NYSE:GXP) with a gross margin of 41.01%. AEE has an EBITDA of $2.27B while CNP has $2.20B, EXC at $6.66B, and GXP with only $778.60M.

AEE's 13.9 trailing P/E is at the low end of its five-year range (lowest 7.0 to highest 89.2) and EPS is currently 2.26. For fiscal year 2011, analysts estimate that AEE will earn $2.55. For the 3rd quarter of fiscal year 2011, AEE announced earnings per share of $1.18, representing 46% of the total annual estimate. For fiscal year 2012, analysts estimate that AEE's earnings per share will decline by 9% to $2.32. I feel despite the lower estimate this stock will outperform, thus pushing the stock even higher. I believe the recent rise in the shares reflects the investor shift to the utilities sector due to the extraordinary volatility and often sharp declines in the broader market. AEE is no stranger to this shift, hence the rise in its share price. On 01/23/12, AEE closed at $31.83, 6.7% below its 52-week high and 24.6% above its 52-week low.

Alliance Resource Partners, L.P. (NASDAQ:ARLP) is a limited partnership. The company is a diversified producer and marketer of coal primarily to the United States utilities and industrial users. The current market price is $77.13 with a one-year analyst price target of $84.71. This represents a 9.83% upside potential not including its $0.99 quarterly dividend yielding 5.13%. With an above-average payout ratio and an average yield of 6.90%, this company will continue to pay. Also, ARLP appears to be undervalued with its current PEG of 0.88.

Alliance Resource Partners outshines its peers in nearly every category. The company's current gross margin is 33.93% while its competition, Arch Coal Inc. (NYSE:ACI) has 25.12%, CONSOL Energy Inc. (NYSE:CNX) has 36.35%, and Peabody Energy Corp. (NYSE:BTU) has a gross margin of 30.40%. ARLP's days sales in inventory is the lowest within its coal Industry. Also, ARLP has a whopping EPS of 8.24 compared with ACI at 0.73, CNX at 2.76, and BTU with an EPS of 3.52. The current trailing P/E of 9.8 also represents an 18% discount to its five-year average of 12.0, further making this stock a great buy opportunity.

According to the Energy Information Administration (EIA), electric generation-based coal consumption increased more than 4.8% in 2010 as demand improved along with the economy, but then in 2011 fell 3.2%. The outlook for the sector is relatively flat, and demand should stay flat throughout the year, but this bearish sentiment I believe opens the door for a great opportunity. The stock is performing roughly 10% off its 52-week high and continues to be fundamentally sound. I believe this is a great pick for both growth and consistent dividend yield.

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

Source: 4 Undervalued Stocks Paying 5%+ Dividends