The more than 13% decline in the S&P 500 Index since the start of the year has meant that many names have experienced falling share prices. This has resulted in a resizing of valuations in a lot of cases.
At the same time, dividend yields have started to move higher as a result, which could make stocks more attractive from an income perspective.
This article will examine three stocks trading at a sizeable discount to their GF Values while offering yields at least twice that of the S&P 500’s average yield of 1.5%.
LyondellBasell
First up is LyondellBasell Industries N.V. (LYB, Financial), a leading chemicals company. The company has a market capitalization of $38 billion and annual sales of $46 billion.
LyondellBasell is one of the largest plastics, chemicals and refining companies in the market. The company provides materials, products and solutions for a variety of end-markets, including appliances, fuel efficiency, food safety and water purity. Earnings per share have compounded at a rate of 15.5% annually over the last decade, according to Value Line.
The company has actually performed quite well thus far in 2022 as the stock is higher by almost 21% year-to-date. The company has seen its business perform quite well over the past five quarters as revenue growth has ranged from 21% to 108% during this period.
LyondellBasell’s results are coming off comparable periods that were severely impacted by the Covid-19 pandemic. However, revenue and earnings per share are largely ahead of pre-pandemic results, showing the strength of the company as it continues to rebound from a difficult period.
Business is doing so well that LyondellBasell announced a 5.3% dividend increase to $1.19 per share for the regularly scheduled quarterly payment on June 13. This is below the 10-year average dividend growth rate of more than 13%. The company has now raised its dividend for 11 consecutive years.
The new annualized dividend gives LyondellBasell a forward yield of 4.4%, better than the stock’s average yield of 3.9% since 2012 and almost three times as much as the yield for the S&P 500.
While LyondellBasell’s most recent increase is lower than its long-term average, the company also announced a special dividend of $5.20 payable the same date as the quarterly payment. LyondellBasell rarely distributes special dividends.
The GF Value chart rates LyondellBasell as modestly undervalued.
The stock closed Friday at $107.40. With a GF Value of $133.29, LyondellBasell is trading with a price-to-GF-Value ratio of 0.81. Were LyondellBasell to reach its GF Value, shareholders would see a 24.1% gain. Including the dividend, total returns could reach into the high 20% range.
M.D.C. Holdings, Inc.
Next up is M.D.C. Holdings Inc. (MDC, Financial), which offers homebuilding and financial services. The $2.7 billion company had sales of $5.3 billion in 2021.
The company purchases or constructs single-family detached homes, typically targeting those buying their first home or those moving up to the next purchase level. This part of the business is conducted under the “Richmond American Homes” name. In addition, M.D.C. Holdings’ financial services business originates mortgage loans to the company’s customers and provides insurance coverage.
Earnings growth has been explosive, with a compound annual growth rate (CAGR) of 26% since 2012. Most of this growth has occurred in the past few years as demand for housing has far outweighed supply, causing average home prices to soar.
M.D.C. Holdings has enjoyed quite the business boom over the past few years. Revenue growth has bounced from the high teens to the low 50% range over the last few quarters. Earnings growth has been equally strong. Even 2020, which was a difficult year for most companies, saw top-line results improve 22% while earnings per share grew 50%. Despite the positives working in the company’s favor, M.D.C. Holdings’ stock has fallen 31% this year.
Strong business performance has enabled a high level of dividend growth in the near-term. For example, the company raised its quarterly dividend 25% to 50 cents for the Nov. 24, 2021 payment date.
Investors should be aware that M.D.C. Holdings did suspend its dividend for 2013. Aside from that, the company had held its dividend payment at the same rate from late 2005 to mid-2017. Following this period, growth did take off as the dividend has more than doubled in the last five years. M.D.C. Holdings has a dividend growth streak of six years. Shares yield 5.3% compared to the average yield of 3.9% since 2012.
The GF Value chart shows the stock to be significantly undervalued.
With a share price of $37.64 and a GF Value of $60.59, M.D.C. Holdings has a price-to-GF-Value ratio of 0.62. Achieving the GF Value would imply a 61% return potential from the most recent close before the dividend is added.
Simon Property Group
The final name for discussion is Simon Property Group Inc. (SPG, Financial), a real estate investment trust that owns, develops and manages malls and outlet shopping centers. The REIT is valued at $42 billion and produces annual revenue of just over $5 billion. The stock has fallen 31% year-to-date.
Simon Property Group focuses on owning attractive properties to high-end retailers as a means to drive customer foot traffic to locations. The REIT has more than 230 properties that have nearly 190 million square feet of leasable space.
Malls have been one of the weaker areas of retail over the past few years, but Simon Property Group has held up reasonably well. Funds from operation have a CAGR of 4.6% for the 2012 to 2021 time period. The REIT also has a solid occupancy rate of 93.3% as of the most recent quarter, providing evidence that Simon Property Group’s properties remain in high demand.
The REIT has also used acquisitions to increase its reach. For example, Simon Property Group added Taubman Realty Group in late 2020. This transaction added an additional 26 high-quality retail locations to the portfolio.
Simon Property Group’s dividend growth history has not been smooth. It had a 10-year dividend growth streak going before cutting it by 38% in 2020. While still not yet back to its previous level, Simon Property Group has increased its dividend four out of the past five quarters. This includes a 3% raise for the upcoming June 30 distribution date. The stock’s yield of 6.2% compares favorably to the 10-year average yield of 4%.
The GF Value chart shows Simon Property Group to be modestly undervalued.
Simon Property Group closed the trading week at a $109.95. With a GF Value of $125.09, the stock has a price-to-GF-Value ratio of 0.88. Shareholders could see a 13.8% gain if the stock were to reach its GF Value. The dividend yield pushes total return potential into the high teens range.
Final thoughts
While the short-term market decline might have investors skittish, those with a long-term view can use to volatility to acquire names they find attractive. There are stocks trading at a meaningful discount to their intrinsic value estimates as a result of the sell-off. Even better, many of these names offer market-beating yields.
LyondellBasell, M.D.C. Holdings and Simon Property Group are three examples of stocks that fit this description. Each name trades at a discount to its GF Value. Each stock also has a yield that is superior to its own historical average and is at least twice the average yield of the S&P 500.
