3 Small-Cap Dividend Stocks Trading For Cheap Despite Solid Growth Projections

 |  Includes: AM-OLD, SCS, THG
by: ZetaKap

Dividend stocks that offer moderate or better yields appeal to many investors, especially when there is potential for increased yields on the horizon. Today, we looked at dividend stocks at the small cap level. At this size, there is always room for growth. But to find the ones with noteworthy potential, we focused on companies that have EPS growth rates of over 25% in the next year. Sizeable growth projections help mitigate some of the risk involved with small-cap investments. Additionally, we reduced the list to include those that appear to be trading below perceived market value. Take a look to see for yourself if any of these dividend stocks meet your standards.

EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.

The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its 12-month trailing sales numbers. In the most basic terms, it lets an investor know how much the investment community is willing to pay for every dollar 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 dollar worth of the 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 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.

We first looked for small-cap dividend stocks. We then looked for companies with estimated high-growth, with 1-year projected EPS growth above 25%. We then looked for businesses that are trading at a discount (P/S<1)(forward P/E<10). We did not screen out any sectors.

Do you think these small-cap stocks will offer healthy returns? Use this list as a starting-off point for your own analysis.

1) The Hanover Insurance Group Inc. (NYSE:THG)

Sector Financial
Industry Property & Casualty Insurance
Market Cap $1.58B
Beta 0.53
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THG stock chart

Key Metrics

Dividend Yield 3.40%
Payout Ratio 54.59%
1-Year Projected Earnings Per Share Growth Rate 33.68%
Price/Sales Ratio 0.35
Forward Price/Earnings Ratio 9.27
Short Interest 0.52%
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The Hanover Insurance Group, Inc., through its subsidiaries, underwrites commercial and personal property, and casualty insurance coverage in the United States. It operates in four segments: Commercial Lines, Personal Lines, Chaucer, and Other Property and Casualty. The Commercial Lines segment provides coverage for commercial multiple peril; commercial automobile; workers' compensation; and other commercial coverages, including AIX program business, inland marine, and bonds, as well as professional and management liability, umbrella, specialty property, monoline general liability, and fire. The Personal Lines segment offers coverage for personal automobile and homeowners, as well as other personal lines, such as personal inland marine, umbrella, fire, personal watercraft, and earthquake. The Chaucer segment includes property, marine and aviation, energy, and U.K. motor, as well as casualty and other coverages, which include international liability, specialist coverages, and syndicate participations. The Other Property and Casualty segment provides investment advisory services; and manages assets for unaffiliated institutions, such as insurance companies, retirement plans, and foundations. The company sells its products and services through a network of independent agents and insurance brokers, as well as through comparative Website aggregators. The Hanover Insurance Group, Inc. was founded in 1844 and is headquartered in Worcester, Massachusetts.

2) Steelcase Inc. (NYSE:SCS)

Sector Consumer Goods
Industry Business Equipment
Market Cap $1.22B
Beta 1.27
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SCS stock chart

Key Metrics

Dividend Yield 3.71%
Payout Ratio 57.59%
1-Year Projected Earnings Per Share Growth Rate 32.89%
Price/Sales Ratio 0.44
Forward Price/Earnings Ratio 9.60
Short Interest 2.60%
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Steelcase Inc. designs, manufactures, and distributes furniture systems and seating products, user-centered technologies, and interior architectural products primarily in North America, Europe, and Asia. Its furniture systems portfolio consists of panel-based and freestanding furniture systems; and complementary products, such as storage, tables, and ergonomic worktools. The company also provides seating products, including ergonomic chairs; seating for collaborative or casual settings; and specialty seating for specific markets comprising healthcare and education. In addition, its interior architectural products include full and partial height walls and doors. Further, the company offers workplace strategy consulting, lease origination, and furniture and asset management services. Additionally, it designs, manufactures, and sells visual communication products, such as interactive electronic whiteboards to primary and secondary education markets, as well as manufactures and sells steel and ceramic surfaces to third-party fabricators for use in the manufacture of static whiteboards. It also designs and sells surface materials comprising textiles and wall coverings primarily to architects and designers. It sells its products to corporate, government, healthcare, education, and retail customers under the Steelcase, Coalesse, Designtex, Details, Nurture, PolyVision, and Turnstone brands. The company markets its products and services through a network of independent and company-owned dealers, as well as directly to end-use customers. The company was founded in 1912 and is headquartered in Grand Rapids, Michigan.

3) American Greetings Corp. (NYSE:AM-OLD)

Sector Services
Industry Specialty Retail, Other
Market Cap $480.10M
Beta 1.73
Click to enlarge

AM stock chart

Key Metrics

Dividend Yield 4.23%
Payout Ratio 70.10%
1-Year Projected Earnings Per Share Growth Rate 50.89%
Price/Sales Ratio 0.29
Forward Price/Earnings Ratio 5.57
Short Interest 44.03%
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American Greetings Corporation, together with its subsidiaries, engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide. It offers social expression products, including greeting cards, gift wrap, party goods, giftware, and stationery, as well as custom display fixtures; and DesignWare party goods, Plus Mark gift wrap and boxed cards, and AGI In-Store display fixtures. The company distributes social expression products comprising electronic greetings, physical products incorporating consumer photos, and a range of graphics and digital services and products through various electronic channels, including Web sites, Internet portals, instant messaging services, and electronic mobile devices; and creates and licenses its intellectual properties, such as the Care Bears and Strawberry Shortcake characters. In addition, American Greetings Corporation operates an online photo sharing space and provides consumers the ability to use their photos to create physical products that include greeting cards, calendars, online photo albums, and photo books. Its domestic greeting card brands comprise American Greetings, Recycled Paper Greetings, Papyrus, Carlton Cards, Gibson, Tender Thoughts, and Just For You; and Internet brands consist of AmericanGreetings.com, BlueMountain.com, Egreetings.com, Kiwee.com, Cardstore.com, and Webshots.com. The company distributes its products through, mass merchandisers, discount retailers, chain drug stores, and supermarkets, as well as card and gift retail stores, department stores, military post exchanges, variety stores, and combo stores. American Greetings Corporation was founded in 1906 and is headquartered in Cleveland, Ohio.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/23/2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.