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Nathan Parsh
Nathan Parsh
Articles (119) 

Three Stocks With a High Yield and Low Valuation

With markets moving higher in recent weeks, finding high-yielding value opportunities is tough

June 09, 2020 | About:

Following the stock market rally in recent weeks, the S&P 500 has now wiped out the losses that it incurred during the early days of the Covid-19 pandemic in the U.S. With this comes an average yield of 1.9% and an average price-earnings ratio of 23.2.

Finding high-yielding stocks with a low valuation can be difficult at the moemnt. In this article, we will look at three stocks that have more attractive yields and forward price-earnings ratios than the market averages.

Franklin Resources

Franklin Resources (NYSE:BEN) has a dividend yield of 4.5% and a forward price-earnings ratio of 11. It is a leading financial services company that specializes in investment management. The company has $580 billion in assets under management as of the end of the most recent quarter.

On Feb. 18, Franklin Resources announced it will be acquiring Legg Mason (LM) for $4.5 billion in cash. Franklin Resources will also assume $2 billion of the company's debt. The transaction is expected to close by the end of September. Franklin Resources had a market capitalization of $12 billion as of Monday’s close.

Franklin Resources pays an annual dividend of $1.08. The company raised its dividend 3.9% for the payment distributed Jan. 9, giving the company 40 years of dividend growth. Franklin Resources has compounded its dividend by 14% per year for the last decade. While the most recent increase is well off its 10-year average growth rate, income investors should take note of the stock’s yield. Based off the current share price of $23.77, the stock yields 4.5%. This compares to an average yield of 1.5% since 2010. The current yield is three times that of its long-term average yield.

Wall Street analysts predict that Franklin Resources will earn $2.20 per share in fiscal 2020, which gives the stock a forward price-earnings ratio of 11 using Monday’s closing price. The stock has averaged a price-earnings ratio of 13.6 over the last 10 years. This means that shares are currently trading at an 24% discount to the stock’s long-term average valuation.

With a yield that is significantly higher than average and a price-earnings ratio below its 10-year average, Franklin Resources looks attractive today.

PPL Corporation

Pennsylvania Power & Light Company has been in existence since 1920. It is now known as PPL Corporation (NYSE:PPL) today and has more than 10 million customers in the U.S. and U.K. PPL Corporation is the parent company of seven regulated utility companies and trades with a market capitalization of $23.6 billion. The stock has a dividend yield of 5.4% and a forward price-earnings ratio of 12.6.

The company gave shareholders a 0.6% dividend increase for the payment made April 1. This nominal increase maintains the company’s dividend growth streak, which now totals 19 years. The average dividend increase over the last 10 years was 2.5%. With an annualized dividend of $1.66, shares yield 5.4% based on Monday’s closing price of $30.65. This compares favorably to the 10-year average yield of 4.7%.

Analysts expect PPL Corporation to earn $2.44 per share in 2020. This equates to a price-earnings ratio of 12.6. The stock’s 10-year average multiple is 13.2. The current valuation is a 5% discount to PPL Corporation’s average price-earnings ratio since 2010.

PPL Corporation may not offer much in terms of dividend growth as the average increase was only slightly lower than the 10-year average growth rate, but the yield is three times that of the S&P 500. Investors concerned with immediate income may find the stock attractive due to the yield.

Walgreens Boots Alliance

Walgreens Boots Alliance (NASDAQ:WBA) is a retail pharmacy leader in both the U.S. and Europe. The company has almost 19,000 stores spread out over 11 countries. In addition, Walgreens distributes pharmaceuticals to 230,000 hospitals, pharmacies and doctors' offices around the world each year. The company has a market capitalization of $41 billion, a dividend yield of 3.9% and a forward price-earnings ratio of 8.6.

Walgreens has a dividend growth streak of 44 years going, with the most recent increase being a 4% raise for the payment made Sept. 12, 2019. If history is any guide, Walgreens will likely announce a dividend raise sometime in July. The average increase was nearly 14% over the last decade. With an annualized dividend of $1.83 and a current share price of $47.02, Walgreens yields 3.9% at the moment. The stock has averaged a 2.2% yield over the last 10 years.

Walgreens is projected to earn $5.46 per share this fiscal year, which ends Aug. 31 for the company. This equates to a forward price-earnings ratio of 8.6. Historically, the stock has averaged a price-earnings ratio of 15.9. Walgreens currently trades at an 85% discount to its 10-year average price-earnings ratio.

Walgreens may offer the lowest yield on this list of stocks, but the stock trades at a significant discount to its long-term average valuation.

Final thoughts

With the S&P 500 climbing higher in recent weeks, the index’s yield has gone down while the multiple has increased. Still, there are plenty of stocks to be found that offer high yields and low valuations.

Franklin Resources, PPL Corporation and Walgreens each offer a high yield and a forward price-earnings ratio that is below their 10-year average. I think value investors looking for yield and low earnings multiples could do well buying any of these names at the current prices.

Author disclosure: the author is not long any stocks discussed in this article.

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About the author:

Nathan Parsh
I am originally from Detroit, Michigan, before moving to Maryland to begin a career as an educator. This is my 14th year teaching. My wife and I have two young children who keep us on our toes.

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