Dividend investors love consistently strong yields, but especially when they can get them on sale. Today, we focused on dividend stocks in the mid-cap space offering yields at 3% and higher, but that additionally look under-priced by their fundamentals. If they truly are trading below their fair price, it means that now could be the right time to buy. To narrow in on the best stocks in this class, we only selected for stocks that analysts have on average awarded high ratings to, scored as "Buy" or better. If analysts in general favor a stock, it suggests that the company stands on solid financial footing. Under this criteria, we came up with a diverse list of cheap mid-cap investment possibilities.
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 firm 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.
We first looked for mid-cap dividend stocks. We then looked for businesses that are undervalued when company growth rate is taken into account (PEG Ratio < 1)(P/BV<1). We then looked for companies that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We did not screen out any sectors.
Do you think these mid-cap stocks will go up in valuation? Please use our list to assist with your own analysis.
1) PartnerRe Ltd. (PRE)
| Sector: | Financial |
| Industry: | Property & Casualty Insurance |
| Market Cap: | $4.58B |
| Beta: | 0.54 |
PartnerRe Ltd. has a Dividend Yield of 3.37%, a Payout Ratio of 24.63%, a Price/Earnings to Growth Ratio of 0.83, a Price/Book Value Ratio of 0.69, and a Analysts' Rating of 2.50. The short interest was 1.87% as of 08/14/2012. PartnerRe Ltd., through its subsidiaries, provides reinsurance services worldwide. It offers reinsurance coverage to insurers for property damage or business interruption losses resulting from fires, catastrophes, and other perils covered in industrial and commercial property, and homeowners' policies; and casualty reinsurance, such as third party liability, employers' liability, workers' compensation, and personal accident coverage. The company also provides coverage against agricultural yield and price/revenue risks related to flood, drought, and hail, as well as diseases related to crops, livestock, and aquaculture; specialized reinsurance protection for airline, general aviation, and space insurance business; and property catastrophe reinsurance protection against the accumulation of losses caused by windstorm, earthquake, tornado, tropical cyclone, and flood.
2) Validus Holdings, Ltd. (VR)
| Sector: | Financial |
| Industry: | Property & Casualty Insurance |
| Market Cap: | $3.05B |
| Beta: | 0.38 |
Validus Holdings, Ltd. has a Dividend Yield of 3.08%, a Payout Ratio of 29.25%, a Price/Earnings to Growth Ratio of 0.94, a Price/Book Value Ratio of 0.87, and a Analysts' Rating of 1.80. The short interest was 2.64% as of 08/14/2012. Validus Holdings, Ltd., through its subsidiaries, provides reinsurance and insurance coverage in the property, marine, and specialty lines markets worldwide. The company underwrites property catastrophe reinsurance, property per risk reinsurance, and property pro rata reinsurance products; and reinsurance on marine risks covering damage to or losses of marine vessels and cargo, third-party liability for marine accidents, physical loss, and liability from principally offshore energy properties. It also underwrites specialty lines of business, which include aerospace and aviation, agriculture, terrorism, life, accident and health, financial lines, nuclear, workers' compensation catastrophe, crisis management, political risks and violence, war, and contingency.
3) GameStop Corp. (GME)
| Sector: | Services |
| Industry: | Electronics Stores |
| Market Cap: | $2.33B |
| Beta: | 0.98 |
GameStop Corp. has a Dividend Yield of 3.35%, a Payout Ratio of 6.20%, a Price/Earnings to Growth Ratio of 0.79, a Price/Book Value Ratio of 0.79, and a Analysts' Rating of 2.40. The short interest was 38.23% as of 08/14/2012. GameStop Corp. operates as a video game retailer. It sells new and used video game hardware; physical and digital video game software; and accessories and other products that primarily include controllers, memory cards, and other add-ons, as well as strategy guides, magazines, and trading cards. The company also offers personal computer (PC) entertainment and other software across various genres, including sports, action, strategy, adventure/role playing, and simulation, as well as products that relate to the digital category comprising network point cards, prepaid digital and online timecards, and digitally downloadable software.
4) Cliffs Natural Resources Inc. (CLF)
| Sector: | Basic Materials |
| Industry: | Steel & Iron |
| Market Cap: | $6.17B |
| Beta: | 2.40 |
Cliffs Natural Resources Inc. has a Dividend Yield of 5.77%, a Payout Ratio of 14.55%, a Price/Earnings to Growth Ratio of 0.62, a Price/Book Value Ratio of 0.98, and a Analysts' Rating of 2.30. The short interest was 10.15% as of 08/14/2012. 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.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
