When the market appears to be extremely unpredictable, investors tend to push the safety button by going for the big stable companies that offer lucrative dividends. However, most of these stocks are expensive to acquire in terms of valuation and also price per share, which makes it somewhat illogical to buy with a focus on dividends.
Nonetheless, the market is not short of opportunities, and this is why some investors are pretty good at selecting high-yielding stocks that are available at cheap prices. Here we look at a quartet of companies that offer lucrative dividends at cheap prices, as well as, huge potential for growth in the coming years/quarters.
Provident Financial Holdings (PROV, Financial) is a community bank based in California. The company serves the Inland Empire region of the West Coast state via four full-service banking offices in Riverside County and an additional full-service banking office in San Bernardino County.
Provident Financial has been in recovery lane over the last four years after taking a major hit during the global financial crises of 2008 and 2009. The company has increased its capital reserves by 75% on average in each of the last five years while most recent quarter earnings increased by 27%.
This is a sub-$20 per share stock paying a dividend of about 48 cents per share, which equates to a dividend yield of about 2.50%. The company’s P/E ratio of 16.61x indicates a slight discounted pricing when compared to the industry average of about 16.90x while its P/S ratio of about 2.03x is significantly better than the industry average of about 3.26x.
Provident Financial currently has a payout ratio of 41%, which means, given the recommended level of about 60%, there is still a lot of room for improvement in the coming years and quarters. The company has shown the desire to give money back to shareholders following the recent share buyback which saw it give back more than $3.2 billion during Q2 this year.
Medallion Financial (TAXI, Financial) is an asset-financing company focusing on taxicab medallions and various types of commercial businesses. This stock is currently among the best small cap business stocks in the market.
The company currently has a dividend yield of about 12.30%. However, the payout rate of about 78% is slightly above the recommended rate of 60%. Nonetheless, this is still within its earnings capability which means that the company does not have to fetch for cash elsewhere to pay dividends.
Medallion Financial also appears incredibly cheap as it currently trades at 68% of its tangible book value. Its P/E of about 6.39x also compares positively with the industry average of about 14.38x while its profitability margins of 100% gross and 57% operating also indicate that the company is fundamentally more attractive than its peers given the industry averages of 85% and 26%. In the most recent quarter, the company’s earnings increased by 9%, and it looks set to achieve a double-digit growth rate in the coming quarters, given its impressive profitability margins.
MetLife (MET, Financial) is the largest life insurance company in the U.S. This company actually has operations in 50 countries globally offering a variety of financial services in addition to its primary life insurance business.
MetLife may not appear cheap at a glance given the fact that it trades at about $51 per share. However, when you look closely, the company’s market value actually prices it at 80% of its tangible book value, which means that given its size and Business Empire, the stock is clearly undervalued.
Its P/E ratio of 9.88x compared to the industry average of 15.41x also implies that the company trades cheaply compared to peers.
MetLife has been increasing the dividend payout ratio by about 13% for each of the last 10 years, yet the current payout stands at just 28%. This means that, if the company maintains this trend, there is a lot of room to pay more to shareholders in the coming years.
MetLife currently trades at a dividend yield of about 2.80%, which is impressive given the low payout ratio. The company has also promised to buy back $1 billion worth of stock from shareholders in addition to the $1 billion already bought this year.
MetLife has a solid balance sheet while its profitability margins are among the best in the industry at 35% gross and 13% operating compared to 24% and 11% respectively for the industry.
Stage Stores (SSI, Financial) is currently trying to turn things around following a difficult campaign that has seen its stock slump by more than 60% this year. However, when a company fails to deliver via capital gains, investors try to look at other alternatives of gaining from the stock.
In this case, Stage Stores offers the option of dividends and given its current dividend yield of about 7.40%, investors can still benefit by investing in the stock.
The company’s revenues declined by 3.50% and are expected to continue falling in the coming quarters after revealing plans to close 90 stores whose profits have failed to match company expectations. There is also the issue of the strengthening the dollar, which has affected some of its sales figures especially for stores located in the U.S.-Mexican border.
These events have put pressure on the company’s shares forcing the stock to trade at an attractive P/E ratio of about 10x. This also means that the company currently trades at 57% of its tangible book value. The company’s weak profitability margins of 26% gross and 3% operating are worrying, but things could change once the implementation of the cost cutting measures is completed.
Stage Stores has been incurring a lot of costs related to closing of stores and headquarter consolidations while heavy discounting has hurt profit margins.
Nonetheless, the company is till profitable and recently increased dividend payout ratio by 16%, which should excite investors.
Conclusion
The bottom line is that when we talk of targeting dividend stocks, the level of dividend yield and the ability to keep growing dividends come to questions. The company’s ability to generate profits is therefore crucial while at the same time keeping financing costs at a minimum.
The stocks discussed here offer a good insight with regard to what investors could be looking for in terms of cheap dividend stocks that offer potential for growth.
Disclosure: I have no position in any stock mentioned.
