The following is an analysis of dividend stocks that can help you increase your wealth or provide you with additional income. I chose these stocks because I strongly believe the market is undervaluing each on a discounted cash flow basis by approximately 20%. Please use my research as a starting point for your own due diligence.
Companhia de Bebidas das Americas Ambev (ABV): Companhia de Bebidas das Americas engages in the production, distribution and sale of beer, draft beer, carbonated soft drinks, malt and other non-alcoholic and non-carbonated products in the Americas. The stock issues an annual dividend of $1.54 with a yield of 4.20%. Its earnings per share (TTM) is $1.50, much lower than competitors Coca-Cola (KO), Fomento Econ (FMX), and Molson Coors Brewing Company (TAP), which have earnings per share of $5.44, $3.13, and $3.26, respectively. However, it is important to note that Companhia de Bebidas das Americas' revenue is four times higher than its competitor Molson Coors Brewing Company.
Revenue and income have been increasing substantially over the last three years. I believe the stock will continue to perform well as it has been trending higher since the beginning of 2009. As revenue increases, I expect earnings per share will increase as well, which can lead to higher dividend distributions to shareholders. At these levels I would buy this stock.
Procter & Gamble Company (PG): Procter & Gamble provides consumer packaged goods in the United States and internationally. The stock is currently trading near its 52-week high of $67.72, which indicates a strong bullish momentum. It's currently paying an annual dividend of $2.10 with a yield of 3.3%.
The price to earnings ratio is 18.54, lower than the industry average of 22.63 and close to its competitor Johnson & Johnson (JNJ) which has a ratio of 18.89, but higher than Kimberly-Clark Corporation (KMB), with a price to earnings ratio at 17.9. In addition, the company's revenue of $85.14 billion is much higher compared to Johnson & Johnson and Kimberly-Clark, which have revenues of $65.03 billion and $20.85 billion, respectively. Although the stock has higher revenue, its earnings per share of $3.40 is lower than the earnings per share of Johnson & Johnson and Kimberly-Clark, with earnings per share standing at $3.49 and $3.99, respectively. This may indicate the company's expenses to revenue may be higher compared the two competitors. Thus, I think the stock is expensive right now and the company can improve its profit margins and increase its earnings per share and dividend payout. Shares are worth $74 apiece on a discounted cash flow basis using a 10% cost of equity. Investors are not appreciating this company's earnings power.
Telefonica SA (TEF): Telefonica SA provides fixed and mobile telephony services primarily in Spain, the rest of Europe and Latin America. The stock is currently trading just above its 52-week low of $16.53; it has an annual dividend distribution of $1.69 and a yield of 9.70%. The payout ratio is 416%.
Over the last 12 months sales and income have increased 7.10% and 30.70%, respectively. This decent growth indicates management's ability to continue growing its business and income in the future. Its revenue of $80.01 billion is much higher than its competitors America Movil S.A.B. de C.V. (AMX), BT Group plc (BT) and Vodafone Group plc (VOD), but earnings per share of $1.19 is lower than those competitors with earnings of $1.86, $3.25, and $2.15, respectively. However, the stock is still cheap compared to its historical data after trading in the $30 range in the past. Shares are worth $22 apiece on a DCF basis.
Federated Investors, Inc. (FII): Federated Investors is a publicly owned asset management holding company. The stock recently hit a 52-week low of $14.36, most likely due to the fact that revenue and income have been decreasing over the last three years. Its annual dividend is $0.96 with a yield of 5.60% and a payout ratio of 66%.
The stock's earnings per share of $1.45 is much lower than its competitor BlackRock, Inc. (BLK), which has an earnings per share figure of $12.37 while its price to earnings ratio of 11.78 is also lower than BlackRock's 14.71. This makes the stock a bit more affordable but it also indicates that investors are not willing to pay a premium to own the stock, at least not yet. The stock is now trading, for the first time, around the first level it traded in 2000, when the tech bubble burst. I believe revenue will begin to increase as the asset management industry stabilizes after turbulent economic conditions that affected the financial industry, thus I consider this stock as a buy with a decent potential for a slow turnaround towards its fair value.
Banco Latinoamericano de Comercio Exterior (BLX): Banco Latinoamericano de Comercio Exterior provides trade financing to commercial banks, middle-market companies and corporations primarily in Latin America. The stock is currently trading near its 52-week high of $19.16. Its annual dividend is $1.00 with a yield of 5.50% and a payout ratio of 39%.
The stock has earnings per share of $1.99, which is higher than its competitors Banco Bilbao Vizcaya Argentaria, S.A. and (BBVA) Banco Santander, S.A. (STD), which have earnings per share of $1.19 and $1.07, respectively. However, earnings per share is lower than Citigroup's (C) earnings of $3.69 per share.
In addition, the stock has a price to earnings ratio of 9.32, which is much higher than all three competitors mentioned above. A higher price to earnings ratio indicates that investors expect high growth from this stock; hence they are willing to pay a premium to own shares right now. The stock has strong potential for growth as the middle class population in Latin America increases, which can lead to higher loans to them to expand business operations or for personal use. Furthermore, the stock is in a strong bullish uptrend. At a 20% discount to its fair value, I am a buyer.
Transcanada Corporation (TRP): Transcanada Corporation operates as an energy infrastructure company in North America. The company operates in three segments: Natural gas pipelines, oil pipelines and energy. The stock is currently trading near its 52-week high of $45.09. It has an annual dividend of $1.64 with a yield of 4% and a payout ratio of 80%.
The stock has earnings per share of $2.02 and a price to earnings ratio of 20.45, which doesn't make the stock cheap compared to the industry average of 16.68 and its competitor Fortis Inc. (OTCPK:FRTSF), which has a ratio of 18.75. Cash flow has been strong and growing over the last five years, a good indication that management is improving the rate it collects cash. Furthermore, although its revenue of $8.82 billion is lower than its competitors' Enbridge Inc. (ENB) revenue of 18.07 billion, Transcanada's earnings per share of $2.02 is higher than Enbridge's $1.77. This is a great indication that the company is better at managing its expenses than this competitor. The strong financial position of the stock indicates that the company will continue to increase its revenue and income, thus I think this is a good dividend stock to buy.