Unbelievable. Un-frigging-believable. People will actually pay you (yes, you) to own shares in their company. Crazy, hunh?!
It's surprising more people don't take advantage of dividend investing. There are high quality companies out there that are not only undervalued but also produce a wicked yield.
That's the sweet spot for us: A company that has the potential to have a good run up and will also pay us to wait. It's the best of both worlds.
As usual, we looked high and low, making calls to long lost lovers, sea-faring captains, and even my cousin Esmerelda, to find a group of stocks that have sustainable dividends and are highly profitable. More specifically, each of these companies are undervalued or close to their fair value according to a discounted cash flow valuation using a 15% discount rate, have a market cap of at least $1B and have a dividend yield of at least 5%.
Here are these 10 titans of industry with plenty of upside that will pay you in the meantime:
1. AT&T (NYSE:T)
T provides telecommunication services to consumers, businesses and other service providers worldwide. AT&T has a market cap over $200 billion, a yield of 5%, and is consistently profitable. Trading at $34.56, analysts don't put this stocks' value much higher than that. Target prices range between $26.50 and $36.50. According to them, in the best case scenario, there isn't much room to run. Vuru's Growth Price puts the value of this business at $46.69 per share, suggesting an upside of 35%.
2. Southern Peru Copper Corp. (NYSE:SCCO)
SCCO mines, smelts and refines mineral properties in Peru, Mexico, and Chile. It's a $25 billion dollar company with an average net profit margin of 28% over the past 10 years. It also has a dividend yield of 7%. Currently trading at $29.62, Wall St. analysts have a wide range of target prices for this stock, $28 (Dahlman Rose) - $47 (JP Morgan), with the average being $36, suggesting an upside of 21%. Vuru's Growth Price disagrees with this assessment. It says SCCO is overvalued by 16%, with a value of $24.83.
3. GlaxoSmithKline (NYSE:GSK)
GSK engages in the discovery, development, manufacture and marketing of pharmaceutical products, over the counter (OTC) medicines, and health-related products worldwide. It's a $110 billion dollar company with an average net profit margin of 19% over the past 10 years. It also has a dividend yield of 5.5%. Currently trading at $44, Wall St. analysts have an average target price of $48, suggesting an upside of 9%. Vuru's Growth Price disagrees with this assessment. It says the stock is overvalued by 13%, with a value of $38.
4. Alliance Resource Partners (NASDAQ:ARLP)
ARLP produces and markets coal for utilities and industrial users in the United States. Alliance has a market cap of $2.2 billion, a dividend yield of 6.94%, and has produced over $14 in profit for every $100 in revenue over the past 10 years. It's trading at $59.65 and analyst target prices range between $75 and $92. The average is $82.25, suggesting an upside of almost 38%. Vuru puts the fair value of ARLP slightly lower than the average of the analyst target prices. It's Growth Price is $80.56, meaning this stock is undervalued by 35%.
5. Astra Zeneca (NYSE:AZN)
AZN discovers, develops and commercializes prescription medicines for cardiovascular, gastrointestinal, infection, neuroscience, oncology and respiratory and inflammation diseases worldwide. Astra has a market cap of $50 billion, a dividend yield of 6.9%, and has produced over $20 in profit for every $100 in revenue over the past 10 years. It's trading at $40.90 and analyst target prices average at $46.51, suggesting a small upside of almost 14%. However, Vuru is more aggressive in its valuation, pegging the fair value at $77.59, meaning this stock is undervalued by 89%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.