4 Undervalued Stocks Paying 7%+ Dividends

Includes: PGH, SB, SCCO, WIN
by: Leonid Kanopka

I feel that in order to see substantial gains in the market, one must do substantial research in order to find stocks that are being sold at a true "value." A momentarily bad quarter and shifting market sentiment has pushed the market low, on some stocks more than on others.

When looking for stocks that are “undervalued” there are several facts one can dissect, and even speculation can be used. Many methods are used to find stocks that are considered undervalued, one popular method is PEG (Price/Earnings to Growth). I like to use this ratio because unlike the P/E, it takes into account growth. Below I have screened four stocks that I believe to be undervalued given their < 1 PEG. Not only are they undervalued, but these stocks are offering dividend yields of 10% or greater and have a higher payout ratio than the average. Another reason I like dividend investing is because it provides a steady stream of income to live off of, whether it is monthly or quarterly. Below are 4 stocks that pay dividends and are excellent companies to consider for a steady stream of income and steady growth:

Safe Bulkers, Inc. (NYSE:SB) is an international provider of marine dry bulk transportation services, transporting bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes for some of the global consumers of marine dry bulk transportation services. The current market price is $6.6 with a one-year analyst price target of $8.36. This represents a 26.67% upside potential. This upside potential does not include its quarterly dividend payment of $0.15 yielding 9.2% yearly. Safe Bulkers are new to paying dividends but do carry an above industry average payout ratio.

SB’s EPS for the past six quarters have either been in-line with analyst estimates or higher. Compared to its peers this company has an EPS of 1.43: Navios Maritime Holdings (NYSE:NM)’s EPS is 0.71, DryShips, Inc. (NASDAQ:DRYS) EPS is 0.1, and Eagle Bulk Shipping (NASDAQ:EGLE) has an EPS of -0.16. For fiscal year 2012, analysts estimate that SB's earnings per share will grow by 2% to $1.53. Also, Safe Bulkers’ gross margin (trailing 4 quarters) of 68.6% is the highest within its Marine Freight Transport Industry. The five year expected PEG for SB is 0.88 further showing this company is undervalued at its current price.

President Obama's goal is to double exports by 2015. The Journal of Commerce's economist forecasts U.S. container import volume to rise 2.8% in 2012, versus 2.2% in 2011, while exports grow 5.7% in 2012, down from 5.8% in 2011. Although the estimates are lack-luster, the fact that exports are expected to double within three years shows a huge glimmer of hope and growth potential. Overall this stock appears to be undervalued especially with its dividend yield making it a great Buy opportunity.

Pengrowth Energy Corporation (NYSE:PGH) is engaged in the development, production and acquisition of, and the exploration for, oil and natural gas reserves in the provinces of Alberta, British Columbia, Saskatchewan and Nova Scotia. The current market price is $11 with a one-year analyst price target of $12. This represents a 9.09% upside potential. PGH also offers a 7.6% dividend yield with a 229% payout ratio. The five-year average dividend yield is 13.60% which is substantially higher than the current yield, but does show a sign of consistent payments.

The U.S. Energy Information Administration (EIA) estimates that global oil demand grew 2.75 million b/d in 2010, to 87.07 million b/d, and, as of December 2011, sees growth of 1.06 MMb/d in 2011, to 88.13 MMb/d, and 1.39 MMb/d in 2012, to 89.52 MMb/d. Earlier in 2011, oil prices reached highs not seen since 2008, reflecting the disruption of exports from Libya and unrest elsewhere in the Middle East/North Africa. This combination reflects a huge opportunity for PGH. With increased demand and prices it only makes sense this companies fundamentals will increase substantially.

Moving Average Convergence/Divergence (MACD) indicates a Bullish Trend, and the 10, 21, and 50 day moving average is rising which is Bullish. Compared to its peers PGH performs relatively well. Quarterly revenue growth (yoy) is 10.50% compared to the competition: Canadian Natural Resources Limited (NYSE:CNQ) 8.70% and Encana Corporation (NYSE:ECA) -3.00%. An EPS of 0.08, on the other hand, is relatively lower, but expected to grow 50% by year end. CNQ has an EPS of 1.36 and ECA has an EPS of 0.35. With the current dividend yield and growth expectations this value stock is not one to avoid.

Southern Copper Corporation (NYSE:SCCO) is an integrated copper producer. SCC produces copper, molybdenum, zinc and silver. All of the Company's mining, smelting and refining facilities are located in Peru and in Mexico, and it conducts exploration activities in those countries and Chile. The current market price is $31.92 with a one-year analyst price target of $36.37. This represents a 14% upside potential. This upside does not include the dividend yield of 9%. This dividend yield is higher than its five-year average of 6.40%, but its payout ratio of 81% is higher than the industry average. SCCO has a PEG of .9, further showing this stock is undervalued.

SCCO's net margin (trailing 4 quarters) of 38.0% is the highest within its Specialty Mining & Metals Industry. SCCO's current trailing P/E of 11.5 represents a 55% discount to its Specialty Mining & Metals Industry average. Also, compared to its peers SCCO has a quarterly revenue growth of 38.80% compared directly to Freeport-McMoRan Copper & Gold (NYSE:FCX) which has a quarterly revenue growth at 0.80%.

Aluminum, copper, nickel, zinc, iron ore and coking coal prices are expected to rise again in 2012, due mostly to a continued increase in demand and less abundant supply. Rising prices will also attribute for growth; the average copper price for 2011was $4.05 a pound, versus 2010's average price of $3.43 a pound. For fiscal year 2012, analysts estimate that SCCO's earnings per share will grow by 2% to $2.89. Southern Copper also shows a bullish chart pattern with an upward sloping 10 and 50 day moving average. MACD also shows a bullish trend.

Windstream Corporation (NASDAQ:WIN) is a communications and technology solutions provider, specializing in complex data, high-speed Internet access, and voice and transport services to customers in 29 states. The current market price is $11.7 with a one-year analyst price target of $13.52. This represents a 15.56% upside potential. WIN also offers a dividend yield of 8.5% which is right at its five-year average, and has a payout ratio of 192%.

Windstream's days sales in inventory of 10.2 is substantially shorter than the Integrated Telecom Svcs. Industry average of 17.9. Also compared to its peers, WIN has significantly lower revenue, but qtrly rev Growth (yoy) is higher at 6%: AT&T, Inc(NYSE:T) has -0.30%, Sprint Nextel Corp (NYSE:S) has 2.20%, and Verizon Communications, Inc. (NYSE:VZ) has quarterly revenue growth of 5.40%. EPS of 0.51 is also slightly higher than the industry average of 0.49.

The competitive local exchange carrier (CLEC), fiber network, and data center acquisitions are likely to continue to provide additional expansion opportunities for Windstream, thereby further diversifying the business away from declining sources of revenue. WIN also provides data center products to its small business and government customers, this will likely drive strong returns going forward. The company continues to acquire smaller rural carriers to expand its customer base. The acquisitions will also stimulate the company’s growth going forward making it a great buy opportunity at the current price and 5-star S&P rating.

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

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