3 Undervalued Large-Cap Dividend Stocks With Killer Earnings Trends

Includes: CF, OXY, WU
by: ZetaKap

Do you prefer large, established companies? Do you like to be able to rely on a stock's dividend income? Looking for ways to dig deeper into a company's profitability? Looking for undervalued stocks? You might be interested in this list.

Operating profit margin is a profitability ratio that measures the effectiveness of a company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in operating profit margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

Return on assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in its current possession. Also, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make large profits with little investment.

The PEG (price/earnings to growth) ratio is a valuation metric for determining the relative tradeoff between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus, using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is "better" (cheaper) and a higher ratio is "worse" (more expensive); a PEG ratio of 1 means the company is fairly priced.

Forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecast earnings instead. While this number might not be as accurate because it uses forecast numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial leverage, also known as the equity multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric, the more the firm is relying on debt to finance its assets.

We first looked for large-cap dividend stocks. We next screened for businesses with strong profit margins (one-year operating margin > 15%)(ROA [TTM] > 10%). We then screened for businesses that appear undervalued to earnings growth (PEG < 1)(forward P/E<10). We did not screen out any sectors.

Do you think these large-cap stocks deserve to grow higher? Please use our list to assist with your own analysis.

1. Occidental Petroleum (NYSE:OXY)

Sector: Basic Materials
Industry: Major Integrated Oil & Gas
Market Cap: $75.33B
Beta: 1.16

Occidental Petroleum has a dividend yield of 2.33%, an operating profit margin of 43.36%, return on assets of 11.13%, a P/E-to-growth ratio of 0.93, and a forward P/E ratio of 9.84. The short interest was 0.62% as of May 2, 2012. Occidental Petroleum engages in the exploration and production of oil and gas properties in the U.S. and internationally. The company operates in three segments: oil and gas; chemical; and midstream, marketing, and other. The oil and gas segment explores for, develops, produces, and markets oil and condensate, natural gas liquids, and natural gas.

2. CF Industries Holdings (NYSE:CF)

Sector: Basic Materials
Industry: Agricultural Chemicals
Market Cap: $12.80B
Beta: 1.13

CF Industries Holdings has a dividend yield of 0.82%, an operating profit margin of 45.76%, return on assets of 19.39%, a P/E-to-growth ratio of 0.72, and a forward P/E ratio of 9.57. The short interest was 2.82% as of May 2, 2012. CF Industries manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. It operates in two segments: nitrogen and phosphate.

3. Western Union Co. (NYSE:WU)

Sector: Services
Industry: Business Services
Market Cap: $11.31B
Beta: 1.41

Western Union has a dividend yield of 2.17%, an operating profit margin of 25.07%, return on assets of 14.08%, a P/E-to-growth ratio of 0.86, and a forward P/E ratio of 9.50. The short interest was 2.24% as of May 2, 2012. Western Union provides money movement and payment services worldwide. The company operates in two segments: consumer to consumer and global business payments. The consumer-to-consumer segment offers money transfer services, including walk-in money transfer, online money transfer, account-based money transfer, and mobile money transfer through a network of third-party agents using multicurrency and real-time money transfer processing systems. The global business payments segment provides business-to-business payment solutions for cross-border and cross-currency transactions, as well as Travelex global business payments services through phone and Internet; services that allow consumers to send funds to businesses and government agencies using cash and debit cards; and Quick Cash, a cash disbursement service for businesses and government agencies to send money to employees or individuals.

Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.

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

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