It is getting tougher to find value in this market after months of a significant rally. It is even harder to find good dividend stocks at reasonable prices. The Dow Jones Transportation Index (IYT) has significantly underperformed the overall market over the past three months (See Chart) and today's dividend selection comes from this unloved sector and it is a solid contrarian play. It is Ryder Systems (R) and the company not only has a cheap valuation and a 3% yield, but also has recent some recent love from analysts and pundits.
Recent positives for Ryder Systems:
- SunTrust just upgraded the stock to a "buy" from "neutral" and put a $48 price target on R.
- Cramer gave a shout out this week and is positive on Ryder's prospects.
- It was initiated as a "buy" by Longbow in August with a $53 a share price target.
- The company is showing some recent innovation getting into natural gas powered trucks and even producing a fleet specifically for Hollywood studios.
Ryder System provides transportation and supply chain management solutions throughout the United States.
5 additional reasons Ryder is a solid bargain at under $42 a share:
- The twelve analysts that cover the stock have a median price target of $54 on Ryder, some 30% above its current stock price.
- R yields a generous 3% yield and has raised its dividend payout at better than a 7% annual clip over the past five years.
- Earnings are rising at a consistent clip. Ryder earned $3.49 a share in FY2011 and is tracking towards $3.82 a share in FY2012. Analysts currently see it making 4.37 a share in FY2013.
- The stock is selling in the bottom third of its five year valuation range based on P/B, P/S and P/CF.
- Ryder is cheap at 9.6 forward earnings, a discount to its five year average (14.9). The stock sells for a very reasonable five year projected PEG (1.14) for a 3% yielder.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in R over the next 72 hours.