3 Undervalued Stocks With Fat Dividends
Looking for good dividend yield? Here are three November bargains:
Ford (F) - Get Report , Garmin (GRMN) - Get Report and LyondellBasell Industries (LYB) - Get Report are November's high-yielding bargains. Each company has sustainable, above-average dividend yields and is undervalued relative to their competitors, though for three different reasons.
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Ford
Despite third quarter earnings released this week that more than doubled last year's third quarter numbers, Ford can't seem to get respect. Maybe it's because its earnings have been unpredictable and it took such a hard hit after the 2008 crash when it plummeted to $2 a share.
It rebounded to $15 this year, but it's still trading at a steep discount to competitors. Perhaps because General Motors has captured more market share in the United States since the financial crisis, and is cheaper at the moment, investors are passing up Ford.
But that's a mistake, because Ford has better prospects.
Ford is poised to recapture market share through increased F-series sales in the United States and small vehicle sales worldwide. Ford also is well-positioned in developing markets. In South America, the Middle East, Africa and the Asian Pacific region, Ford expects its sales of small cars to increase at a faster rate than in developed markets.
And Ford is cutting back on its bloated car line. Since 2007, Ford cut its 27 vehicle platforms down to 12, with a target of nine platforms in 2016. This consolidation cut cost of goods sold by 2.67% helping Ford achieve its best quarter ever in North America with operating margin up 11.3% from a year ago.
The F-series had its best third-quarter sales since 2006, and Lincoln sales were up 15% from a year ago, its best performance since the second quarter of 2008.
Ford has a dividend yield of 4%, double the average of the S&P 500. The company has a forward price-to-earnings (P/E) ratio of 7.45, which makes it undervalued compared to the auto industry's average forward P/E of 10.15.
It may take another few quarters for the rest of the market to become a believer in the Ford story, but in the meantime you can cruise collecting a rich dividend.
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Garmin
Garmin, the maker of global positioning system (GPS) devices, has not lost its way, though the market seems to think so.
The Swiss company had an underwhelming third quarter with earnings-per-share at $0.51, compared to the $0.64 analysts were predicting. The strong dollar played a big role in this miss, bringing down revenue for the third quarter by $52 million from the same period last year. Share price is down more than $20 over the same period and strong competition from Fitbit has left Garmin beaten down.
But the market has discounted Garmin's good news. The company shipped 3.9 million units this quarter, a 4% increase from a year ago. Revenue in the key fitness segment spiked 23% and Garmin launched its new babyCam in the quarter, which lets parents see what's happening in the backseat of the family car.
Garmin is releasing its first activity-tracking heart-rate watch, the Vivosmart HR, this month, which will combat competition from Fitbit. This matches well against Fitbit's Charge HR, which also sells for $150. Garmin is launching an advertising campaign ahead of the holidays to promote its wearable devices and bolster fourth-quarter performance.
Despite having a weak third quarter, Garmin still yields 5.81%. The company's forward P/E ratio of 16.44 is less than the technical instrument industry average of 22 and it is a bargain compared to Fitbit, which has a forward P/E of 55.63. With new product and advertising launches to compete against Fitbit in time for the holidays, Garmin is a great buy, not just for income.
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LyondellBasell Industries
LyondellBasell Industries could not catch a break for a couple years. In 2008, holding lots of debt, the company was hit with the financial crisis, an accident at a Houston refinery that killed four employees, and Hurricane Ike, which shut down the company's plants in Texas. This perfect storm, so to speak, pushed the newly formed company into Chapter 11 bankruptcy in January 2009.
(The company is the result of when the Dutch company Basell Polyolefins bought the Houston-based Lyondell Chemical in 2007.)
Riding high on the U.S. natural gas boom, LyondellBasell emerged from bankruptcy in April 2010, and its stock price rose from $22 a share to $92 in 2015. Today, LyondellBasell is the third-largest chemical and refining company in the United States making mostly plastic products.
The company's net income has grown every year since 2010, as well as its free cash flow, which sustains its 3.36% yield. The company has beaten earnings almost every quarter over the last two years, and by both growth and income standards is a bargain. LyondellBasell has a forward P/E ratio of 9.41, the lowest of any firm in the chemicals industry, which has an average P/E ratio of 13.21.
With the 2008 financial crisis still fresh in everyone's minds and LyondellBasell being a casualty of it, investors might still be nervous about the company. Weak oil prices are also keeping the company's product prices low and depressing revenue. But its profitability is growing and its strong dividend is a nice bonus until oil prices rise.
Frustrated by high volatility combined with low yields? Click here for more growth stocks that sport robust dividends.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.