Dividend investors understand the satisfaction that derives from receiving a payment from an investment. Having a portfolio that includes companies that pay equitable dividends is one way to build up personal wealth. Today we have a short list of companies from multiple sectors. They all are earning income and appear to be undervalued from a price-multiple analysis.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off 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' (expensive)—a PEG ratio of 1 means the company is fairly priced.
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 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.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
We first looked for stocks that have a high dividend yield (Div. Yield > 5%). We then screened for businesses that appear undervalued to earnings growth (PEG < 1)(forward P/E<10). We then looked for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%). We did not screen out any market caps or sectors.
Do you think these stocks will trade at a higher valuation? Use this list as a starting-off point for your own analysis.
1) PDL BioPharma, Inc. (PDLI)
PDL BioPharma, Inc. has a Dividend Yield of 8.92%, a Payout Ratio of 43.07%, a Price/Earnings to Growth Ratio of 0.40, a Forward Price/Earnings Ratio of 3.82, an Operating Profit Margin of 94.31%, and a Net Margin of 54.78%. The short interest was 11.83% as of July 25, 2012. PDL BioPharma, Inc. engages in intellectual property asset management and royalty bearing assets investment activities. The company is involved in the humanization of monoclonal antibodies and the discovery of a new generation of targeted treatments for cancer and immunologic diseases.
2) BBVA Banco Francs S.A. (BFR)
|Industry:||Foreign Regional Banks|
BBVA Banco Francs S.A. has a Dividend Yield of 33.48%, a Price/Earnings to Growth Ratio of 0.61, a Forward Price/Earnings Ratio of 2.51, an Operating Profit Margin of 34.85%, and a Net Margin of 20.59%. The short interest was 0.83% as of July 25, 2012. BBVA Banco Francs S.A., together with its subsidiaries, provides various financial services to corporations, medium and small companies, and individual customers in the Republic of Argentina.
The company offers checking and savings accounts, time deposits, and investment accounts. It also provides short and long-term loans to companies, overdraft lines of credit, discounted instruments, loans to financial institutions and the governmental sector, collateral loans, and real estate mortgage, as well as consumer loans comprising credit card loans and other consumer loans.
3) Pioneer Southwest Energy Partners L.P. (PSE)
|Industry:||Oil & Gas Drilling & Exploration|
Pioneer Southwest Energy Partners L.P. has a Dividend Yield of 8.16%, a Payout Ratio of 46.36%, a Price/Earnings to Growth Ratio of 0.99, a Forward Price/Earnings Ratio of 8.98, an Operating Profit Margin of 70.39%, and a Net Margin of 69.59%. The short interest was 1.04% as of July 25, 2012. Pioneer Southwest Energy Partners L.P. engages in the production of oil and gas in the United States.
As of December 31, 2011, its oil and gas properties included non-operated working interests in approximately 1,116 producing wells located in the Spraberry field in the Permian Basin area of west Texas; and its proved reserves totaled 50,732 thousand barrels of oil equivalent. Pioneer Natural Resources GP LLC serves as the general partner of the company.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.