Interest rates have been extremely low, and the Federal Reserve recently confirmed that rates would remain low for the next couple of years. Many believe that if the Federal Reserve makes it painful enough on savers to stay in low-risk savings and money market accounts, that perhaps, they can be forced into the stock market and real estate, which will help get the economy back on track.
Whether or not you agree with this policy, it truly makes no sense to keep too much money in savings accounts that are basically guaranteed to get you nowhere in the next 3 to 5 years. A money market account that generates a .5% yield means that after 5 years, you could have about 2.5% more in your account. Even waiting for 10 years will only result in gains of about 5%!
This is why dividend stocks make so much sense. Chances are strong that the right dividend stocks will provide not only the dividend payments but also some capital gains if held over the next few years. Here are a number of undervalued dividend stocks that could offer strong gains in the coming years. (An equal weighting in these stocks would provide an average yield of about 12%.):
Telecom Argentina SA (TEO) provides telecommunication services in Argentina. This company is seeing solid growth with mobile phones. The stock is trading well below the 52 week high and it has a generous dividend yield. The earnings estimates easily covers the dividend so the yield looks safe and it could even rise further. Latin America is likely to see stronger growth than other parts of the world, driven by rising disposable incomes. As the global economy improves in the next couple of years, this stock should head back to about $25 per share, which is still below the 52 week high.
Here are some key points for TEO:
- Current share price: $20
- The 52 week range is $16.90 to $26.90
- Earnings estimates for 2011: $3.00 per share
- Earnings estimates for 2012: $3.10 per share
- Annual dividend: $2.21 per share which yields 10.80%
Energy Transfer Partners (ETP) is a natural gas pipeline and transportation services company. Energy stocks are likely to provide investors with a hedge against inflation over time, plus this company pays a generous dividend which yields nearly 8%. This stock trades considerably below the 52 week high so there is also room for capital gains over the next few years as well.
Here are some key points for ETP:
Current share price: $46.71
The 52 week range is $38.08 to $55.50
Earnings estimates for 2011: $1.55 per share
Earnings estimates for 2012: $2.31 per share
Annual dividend: $3.58 per share which yields 7.6%
Invesco Mortgage Capital (IVR) invests in mortgage debt and is set up as a mortgage real estate investment trust (REIT) company, based in Georgia. Some investors fear that this business model is under attack by competitive pressures, mortgage refinancings, and possible new government regulations. However, these companies have a strong history of paying solid dividends, and that is likely to continue. Invesco shares look undervalued based on the dividend yield and book value, which is $16.45 per share.
Here are some key points for IVR:
- Current share price: $15.83
- The 52 week range is $12.55 to $24.07
- Earnings estimates for 2011: $3.42 per share
- Earnings estimates for 2012: $2.77 per share
- Annual dividend: $2.60 per share which yields 16.4%
Annaly Capital Management, Inc. (NLY) invests in mortgage securities and is set up as a mortgage real estate investment trust(REIT) company. Annaly is one of the best managed and most respected companies in the REIT sector. This stock has been relatively stable and that makes it one of the lower-risk ways to invest in a high-yielding stock. Annaly shares appear undervalued based on the dividend and it trades close to book value, which is $16.22.
Here are some key points for NLY:
- Current share price: $16.45
- The 52 week range is $14.05 to $18.79.
- Earnings estimates for 2011: $2.20 per share
- Earnings estimates for 2012: $2.26 per share
- Annual dividend: $2.28 per share which yields 13.3%
Pitney Bowes, Inc. (PBI) offers equipment, supplies, software, services, and other solutions for mailing and processing. The dividend looks safe as it is covered by a healthy margin when compared to earnings estimates. Because online marketing, transactions, and payments reduce the need for traditional mailings this is not likely to see much growth. However, this concern seems to be priced in already. Pitney Bowes recently released earnings and confirmed that earnings guidance would range between $2.05 to $2.25 a share for 2012, which is in-line with consensus estimates reported to Yahoo Finance which averages $1.26 per share.
Here are some key points for PBI:
- Current share price: $19.54
- The 52 week range is $17.33 to $26.36
- Earnings estimates for 2011: $2.25 per share
- Earnings estimates for 2012: $2.16 per share
- Annual dividend: $1.50 per share which yields 7.7%
Chimera Investment Corporation (CIM) invests in residential mortgage-backed securities, and both commercial and residential mortgage loans. This company is organized as a real estate investment trust (REIT) so it pays a generous yield. Based on the dividend and the fact that these shares trade below book value of $3.27, this stock looks undervalued. With the dividend offering a yield of about 15%, an investor buying and holding for the next 3 years could see returns of about 45% and that is without any capital appreciation.
Here are some key points for CIM:
- Current share price: $2.96
- The 52 week range is $2.38 to $4.34
- Earnings estimates for 2011: 47 cents per share
- Earnings estimates for 2012: 45 cents per share
- Annual dividend: 44 cents per share which yields 14.4%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.