3 Undervalued Dividend Stocks With High Earnings Growth

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Includes: GCI, IR, TWX
by: Kapitall

Interested in stocks paying reliable dividend income? For ideas on where to start, we ran a screen. We began by screening for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened for those with strong growth in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), comparing last year's figure to the company's 5-year average.

Finally, we screened for those that appear undervalued by the ratio levered free cash flow/enterprise value.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares. The higher the ratio, the more undervalued the company appears.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. (To access a complete analysis of this list's recent performance, click here.)

Do you think these stocks pay reliable dividends? Use this list as a starting point for your own analysis.

1. Gannett Co., Inc. (NYSE:GCI): Operates as a media and marketing solutions company in the United States and internationally. Dividend yield at 2.16%, payout ratio at 16.00%. TTM EBITDA/equity at 0.46 vs. 5-year average at -0.07. Levered free cash flow at $637.24M vs. enterprise value at $5.20B (implies a LFCF/EV ratio at 12.25%).

2. Ingersoll-Rand Plc (NYSE:IR): Engages in the design, manufacture, sale, and service of a portfolio of industrial and commercial products in the United States and internationally. Dividend yield at 2.82%, payout ratio at 32.72%. TTM EBITDA/equity at 0.17 vs. 5-year average at 0.09. Levered free cash flow at $2.07B vs. enterprise value at $14.52B (implies a LFCF/EV ratio at 14.26%).

3. Time Warner Inc. (NYSE:TWX): Operates as a media and entertainment company in the United States and internationally. Dividend yield at 2.53%, payout ratio at 30.65%. TTM EBITDA/equity at 0.21 vs. 5-year average at 0.10. Levered free cash flow at $10.81B vs. enterprise value at $52.76B (implies a LFCF/EV ratio at 20.49%).

LFCF/EV data sourced from Yahoo Finance; all other data sourced from Screener.co.

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