In a perfect world, investments would always live up to their billings. Though it would be nice, we know it isn't possible. In the real world, a certain amount of risk is always involved. The best we can do is to research and analyze investments to find the ones with the greatest potential. Today, we have a list of dividend stocks that have attractive attributes: very high yields, trading below market value, and favorable profits. We think you will be interested in this short list that warrants further investigation.
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 Price/Book Value Ratio is a great price-multiple valuation metric to find companies that could be potentially undervalued or overvalued. If a company has a Price/Book Value Ratio of less than 1 it is stated to be trading below break up value. A lower P/BV Ratio can indicate a potentially mis-priced company or indicate that something is fundamentally wrong with it.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
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.
We first looked for stocks with a very high yield (more than 5%). We next screened for businesses that appear undervalued to earnings growth (PEG < 1)(P/BV<1). Next, we then screened for businesses that have posted strong earnings growth for shareholders over an extended period of time (1-year fiscal EPS growth rate>10%)(1-year operating margin>15%). We did not screen out any market caps or sectors.
Do you think these stocks have a strong outlook? Use our list to help with your own analysis.
1) Xinyuan Real Estate Co., Ltd. (NYSE:XIN)
Xinyuan Real Estate Co., Ltd. has a Dividend Yield of 6.23%, a Price/Earnings to Growth Ratio of 0.34, a Price/Book Value Ratio of 0.28, an Earnings Per Share Growth Rate of 105.43%, and an Operating Profit Margin of 22.89%. The short interest was 0.53% as of 08/01/2012. Xinyuan Real Estate Co., Ltd., together with its subsidiaries, engages in the development of residential real estate projects in China. The company's residential projects comprise various multiple residential buildings that include multi-layer apartment buildings, sub-high-rise apartment buildings, or high-rise apartment buildings; and small scale residential properties. Its projects include auxiliary services and amenities, such as retail outlets, leisure and health facilities, kindergartens, and schools.
2) Banco Macro S.A. (NYSE:BMA)
|Industry:||Foreign Regional Banks|
Banco Macro S.A. has a Dividend Yield of 16.96%, a Price/Earnings to Growth Ratio of 0.20, a Price/Book Value Ratio of 0.66, an Earnings Per Share Growth Rate of 38.79%, and an Operating Profit Margin of 37.99%. The short interest was 1.71% as of 08/01/2012. Banco Macro S.A. provides banking products and services to individuals, entrepreneurs, companies, and corporate customers in Argentina. It offers various retail products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, car loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automated teller machines (ATMs), and money transfer services. The company also provides personal loans, document discounts, mortgages, overdrafts, pledged loans, and credit card loans to retail customers.
3) Cliffs Natural Resources Inc. (NYSE:CLF)
|Industry:||Steel & Iron|
Cliffs Natural Resources Inc. has a Dividend Yield of 6.11%, a Payout Ratio of 8.82%, a Price/Earnings to Growth Ratio of 0.52, a Price/Book Value Ratio of 0.95, an Earnings Per Share Growth Rate of 54.55%, and an Operating Profit Margin of 29.63%. The short interest was 7.10% as of 08/01/2012. 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.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.