Finding value continues to be difficult as the S&P 500 has a forward price-earnings ratio in the mid-30s and an average yield of just 1.4%. We will explore three companies that are trading at or below their long-term historical price-earnings ratios and GF Values while also providing at least a 2.8% dividend yield. Each name discussed is likely a better value than investing in the S&P 500 while producing more in the way of income as well.
Allstate
Allstate Corp. (ALL, Financial) provides property and casualty insurance, such as automobile and homeowner products. The company also sells life, accident and health insurance products. The company's brands include Allstate, Encompass and Esurance. The company had revenue of nearly $45 billion last year and has a market capitalization of $35.5 billion.
Following an 50% dividend increase for the April 1 payment date, Allstate has now increased its dividend for 11 consecutive years. The company's dividend has a compound annual growth rate of just over 10% since 2011. Shares of Allstate yield 2.8%, compared to the stock's 10-year average yield of 2.1%.
Allstate has an annualized dividend of $3.24. Analysts surveyed by Yahoo Finance expect the company to earn $12.34 this year, resulting in a projected payout ratio of 26%. Since 2011, the average payout ratio is just 25%. However, earnings per share declined drastically from 2010 to 2011. Excluding 2011, the average payout ratio is 21%.
Using the current share price of $117.10 and expected earnings per share for the year, Allstate has a forward price-earnings ratio of 9.3. For context, the stock's 10-year average price-earnings ratio is 11.7. Removing 2011 from the time period once again, the average price-earnings ratio drops to 10.6. Regardless, shares trade below their long-term average.
Allstate appears to be trading just below its intrinsic value, as calculated by GuruFocus. As a reminder, GuruFocus uses historical multiples, past returns and growth and future estimates to determine the GF Value.
Allstate has a GF Value of $118.76, which means the stock has a price-to-GF Value of 0.99.
Conagra
Conagra Brands Inc. (CAG, Financial) is a leading packaged food company. Key brands include Slim Jim, Chef Boyardee, Healthy Choice, Orville Redenbacher's and Hebrew National. The company completed its acquisition of Pinnacle Foods in late 2018. Conagra has a market capitalization in excess of $17 billion and generated revenue of $11.1 billion in fiscal 2020 (the company's fiscal year concludes the last Sunday in May).
Conagra increased its dividend 29.4% for the Dec. 2, 2020 payment date. This was the company's first dividend increase since mid-2017. The dividend was reduced earlier that year and the most recent increase finally puts the annual dividend above pre-2017 levels. The stock yields 3% at the moment, just above the 10-year average yield of 2.9%.
With an annualized dividend of $1.10 and projected earnings per share of $2.63 for the fiscal year, Conagra has an expected payout ratio of 42%. This is below the 10-year average payout ratio of 46%, showing the aggressive dividend increase provided last fall hasn't put the payout ratio above normal levels.
Conagra closed the most recent trading session at $36.19, giving the stock a forward price-earnings ratio of 13.8. Long term, shares have traded with an average multiple of 16.2 times earnings.
GuruFocus finds that the stock is trading just above its GF Value.
Conagra has a GF Value of $35.30, which gives the stock a price-to-GF Value of 1.03.
Medical Properties Trust
Of all the health care REITs in the market, Medical Properties Trust Inc. (MPW, Financial) is the only one that focuses entirely on hospitals. The trust owns 300 properties leased to more than 30 different operators. Most of Medical Properties' properties are acute care hospitals, but the trust does hold specialty hospitals, inpatient rehabilitation and long-term acute care assets in its portfolio. The trust generated revenue of $1.25 billion in 2020 and is valued at $12.5 billion today.
Medical Properties raised its dividend 3.7% for the April 8 payment, which is above the 10-year compound annual growth rate of 3%. This marks the eighth consecutive year of dividend growth for the trust. The dividend yield is a robust 5.2%, though this is below the 10-year average of 6.6%.
The annualized dividend amounts to $1.12, which is projected to consume 66% of expected funds from operation of $1.73 for 2021. Historically, Medical Properties has distributed almost 80% of funds from operation since 2011, but that figure drops to 72% for the past five years. REITs typically have high payout ratios, so the expected ratio for this year is very low compared to many others in the real estate sector..
Medical Properties most recently traded at $21.63. Using expected funds from operations for the year, shares have a forward price-FFO ratio of 12.5. The stock has an average price-FFO of 12.2 since 2011.
Shares are priced just above the GF Value.
Medical Properties has a GF Value of 20.63, giving the stock a price-to-GF Value of 1.05 at the moment.
Final thoughts
Finding undervalued stocks for investment has become increasingly difficult to do. There are names that are trading below their historical valuations and in close proximity to their intrinsic values. Allstate, Conagra and Medical Properties are three such stocks that look cheap based on their respective histories and trade reasonably close to their GF Values. In addition, all three provide at least double the income of the S&P 500.
Those looking for fairly valued investments offering solid and well covered dividend yields could do well owning any of these three stocks.
Disclosure: the author has no position in any stock mentioned in this article.
Read more here:
- Home Depot: Looking to Buy on a Pullback
- Constellation Brands: Strength in Beer, but Shares Fairly Valued
- Stanley Black & Decker: Premium Company Trading at a Premium Valuation
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
