Seeking Alpha
Newsletter provider, fund holdings, insider ownership
Profile| Send Message|
( followers)  

By Marshall Hargrave

In trying to navigate through the wishy-washy economy, we believe that there are a few stocks that have been beaten down due to tough operating situations, but still have a solid dividend that should continue to grow. We have identified five stocks that pay a high dividend, are cheap and safe. These stocks yield over 4% and are down over 20% the past 12 months, having a dividend payout ratio of less than 50% and at least a 5% dividend growth rate over the last five years.

Cliffs Natural Resources Inc. (NYSE:CLF) is the largest supplier of iron ore pellets to the North American steel industry. Cliffs is down over 35% the past year, all the while growing its dividend at a 28% 5-year CAGR. Its current dividend yield is over 6% and is only a 25% payout. Estimates for 2012 EPS were recently cut from $7.41 to $5.36, as well as 2013 from $8.58 to $6.39; this has been driven by low iron ore prices. Part of this decline stems from a possible slowdown in China, but a positive outlook for U.S. GDP, with growth estimated to be 2.2% in 2012 and 2.3% in 2013, helps offset some of the China concerns. Cliffs currently trades at a discount to its peers, at 4x earnings, versus BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO), 12x and 21x, respectively. Cliffs is a new pick for Ray Dalio, while Carlson Capital increased their stake to over 1 million shares during 2Q, making their firm the largest owner of the funds we track.

Yanzhou Coal Mining Co. (NYSE:YZC) mines, prepares, transports and sells coal. Yanzhou is down 33% over the past 12 months, mainly on inventory stockpile buildup due to a mild winter and historically low natural gas prices, which has lead to switching by some power producers. The company also has a beta over 2, which has played a part in the volatility. However, a hot summer has begun to work coal inventory levels down, and guaranteed volume contracts should help Yanzhou weather the demand decline. Yanzhou pays out a dividend that yields 6.2% and has grown its dividend 23% over the last five years. The payout ratio is one of the lowest among the five stocks we have listed, at 28%. Admittedly, Yanzhou has little fund interest, with a few top names owning modest positions, including Jim Simons, Israel Englander and Ken Griffin.

Delhaize Group (NYSE:DEG) is a Belgium food retailer with U.S. brands such as Food Lion, Bottom Dollar Food and Bloom. The company is down over 29% YTD, but pays a dividend with a yield of 5.3%. The company's dividend growth rate for the last five years, at 6%, is one of the smaller growth rates of our five dividend stocks. The current dividend payout ratio does remain modest at 38%. Cost inflation concerns have put pressure on the stock for its U.S. operations, and Greece's woes and European uncertainty have put a damper on the companies operations overseas. However, the company's diverse store base and offerings should be positive going forward, including revamp of one if its key stores, Food Lion, which saw strong increases in same store sales so far this year, up 3.2% in 2Q and 2.9% in 1Q. The big name fund in Delhaize was Jim Simons-increasing his stake by 23% during 2Q.

Vale SA (NYSE:VALE) has one of the stronger five-year dividend growth rates at 26%, and also has one of the highest dividend yields at 6.4%. The company is down 25% over the past 12 months, and has a 33% payout ratio. Vale is the world's largest iron ore producer and will face many of the same economic headwinds that Cliffs does. The company is also the second largest nickel producer. A positive for the company is the expected rise in global steel production in 2012. On the hedge fund scene, Vale is one of our dividend monsters that hedge funds are bullish on. This includes top names that took new positions during 2Q-Arrowstreet Capital and Traxis Partners.

Canon Inc. (NYSE:CAJ), the camera and computer peripheral company is down the least of the five companies mentioned here, at 21% over the past year. The company's stock pressure comes in conjunction with fellow camera maker Kodak's bankruptcy, but Canon is looking to make camera sales a lesser part of its business model, currently 25% of its top line. The company's payout ratio is 50% and dividend yield is 4.4%. Canon grew its dividend at 8% over the last 5 years. The Japanese company, which receives 20% of its sales from Japan, is expecting to see a sales gain of 5.5% in 2013 as it recovers from the Japanese tsunami. As with Yanzhou, Jim Simons, Israel Islander and Ken Griffin were all top names owning Canon at the end of 2Q, with Steven Cohen also upping his small position over 40%.

Overall, we believe that these companies could be trading at a discount, while showing strong dividend growth. The dividend yield on these companies is relatively high, but we believe that the company's low payout ratios allow them the ability to continue making solid dividend payments to its shareholders.

Source: 5 High-Dividend Stocks That Are Safe And On Sale