Are you a dividend investor who not only values yield, but companies with solid fundamentals? Today we looked for dividend stocks with high yields, but with sustainable payouts, backed by strong profitability. We focused only on those stocks that also look undervalued from a price-multiple perspective. You might like the list we came up with.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" 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 is the more the firm is relying on debt to finance its assets.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the 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 the 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 current possession. As well, 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 very large profits with little investment.
We first looked for mid cap stocks that have a high dividend yield (Div. Yield > 5%). We then looked for companies with a low price-multiple premium (forward P/E<10)(P/S<1). We then looked for companies with strong profit margins (1-year operating margin>15%)(ROA > 10%). We did not screen out any sectors.
Do you think these mid-cap stocks are undervalued and have room to trade higher? Please use our list to assist with your own analysis.
1) SK Telecom Co. Ltd. (SKM)
SK Telecom Co. Ltd. has a Dividend Yield of 6.86%, a Payout Ratio of 48.82%, a Forward Price/Earnings Ratio of 6.47, a Price/Sales Ratio of 0.82, a Operating Profit Margin of 22.76%, and a Return on Assets of 10.63%. The short interest was 0.23% as of 06/14/2012. SK Telecom Co., Ltd. provides wireless telecommunications services principally in Korea. The company offers cellular voice services, including wireless voice transmission and related value-added services; wireless global roaming services; and interconnection services to connect its networks to fixed-line and other wireless networks. It also provides wireless data transmission services, such as wireless Internet access services, which allow subscribers to access online digital contents and services, as well as to send and receive text and multimedia messages; wireless entertainment-related contents and services primarily through content-specific portal sites; wireless finance-related contents and m-commerce services; and wireless news and search services comprising news content access, dictionary resources, and weather information services.
2) Cliffs Natural Resources Inc. (CLF)
|Industry:||Steel & Iron|
Cliffs Natural Resources Inc. has a Dividend Yield of 5.32%, a Payout Ratio of 8.82%, a Forward Price/Earnings Ratio of 4.51, a Price/Sales Ratio of 0.97, a Operating Profit Margin of 29.63%, and a Return on Assets of 15.09%. The short interest was 5.95% as of 06/14/2012. Cliffs Natural Resources Inc., a mining and natural resources company, engages in the production of iron ore pellets, fines and lump ore, and metallurgical coal. It operates five iron ore mines located in Michigan and Minnesota; five metallurgical coal mines located in West Virginia and Alabama; and one thermal coal mine located in West Virginia. The company also operates two iron ore mines in eastern Canada that primarily provide iron ore to steel producers in Asia; and two iron ore mining complexes in Western Australia.
3) Telecom Argentina S.A. (TEO)
|Industry:||Diversified Communication Services|
Telecom Argentina S.A. has a Dividend Yield of 8.30%, a Payout Ratio of 37.78%, a Forward Price/Earnings Ratio of 3.21, a Price/Sales Ratio of 0.53, a Operating Profit Margin of 21.20%, and a Return on Assets of 18.29%. The short interest was 1.54% as of 06/14/2012. Telecom Argentina S.A., together with its subsidiaries, provides telecommunication services to residential customers, businesses, and governmental agencies in Argentina and internationally. It operates in two segments, Fixed Telephony and Mobile Services. The Fixed Telephony segment provides local fixed telephony, public telephony, domestic and international long-distance telephony, domestic and international point-to-point link, domestic and international telex, data transmission, videoconferencing, and broadcasting signal services; additional services, including call forwarding, call waiting, three-way calling, itemized billing, and voicemail; and Internet access in Argentina.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.