5 Cheap Dividend Stocks Worth Investigating

Mar. 26, 2013 10:10 AM ETCBRL, CCEP, DGX, STJ, TGT
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We have found five dividend stocks that have "safe" dividends (all have a payout ratio of less than 60%), but are also undervalued -- having a PEG of less than 2.0. Although the dividend yields range from 2% to 3%, they all have been growing their dividend payments by at least 20% annually over the last five years.

Dividends can be a big part of portfolios during low interest rate environments and we have a special appreciation for dividend-paying stocks, but what makes these stocks even greater is the expectation that the dividend payments should continue to move higher and the realization of the stock's under-pricing will lead to a higher stock price.

  • Quest Diagnostics Inc (NYSE:DGX) pays a 2.1% dividend yield, with the lowest dividend payout of the five stocks at 20%. The company has grown its dividend payment by 25% annually over the last five years and is relatively cheap with a 1.3 PEG.

Quest Diagnostics is one of the largest providers of commercial laboratory services in North America. The company was formerly part of Corning, being its laboratory testing business, but spun off in 1996. After a number of acquisitions and growth the company now provides lab testing services to physicians, hospitals, managed care organizations, employers, government institutions, and other independent clinical laboratories.

The company also underwent restructuring in late 2012, which is expected to increase operational efficiency and restore growth. Most notably, this will change the company's business structure by creating two new business groups, diagnostic information services and diagnostic solutions. These changes will eliminate three management layers and 400 to 600 management positions by the end of 2013, leading to an annualized savings of $65 million.

Quest also had some $295 million in cash at the end of 2012, up from $165 million on a year-over-year basis. As

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