Are these 6 dividend stocks under 10 dollars undervalued?

James Dennin, Kapitall: These dividend stocks under 10 dollars look cheap, and have lots of cash on hand for small caps. 

More conservative asset classes are outperforming the stock market in 2014 so far, according to  JP Morgan (JPM) and a tweet from Quartz's Matthew Phillips.

[Read more from Kapitall: Why are tech companies using so much negative advertising?]

Gold and bond yields have outperformed the S&P 500 and Japanese Equities, both among the best performers of 2013.

Bonds have risen as investors gauge what is by most indicators a strengthening economy, illustrated by a recovering housing market and an uptick in consumer spending after a particularly dreary winter.

Improving economic data is usually interpreted by the markets as a sign that interest rates will soon start to rise.  

One option for investors looking to play a growing bond market is to turn to bond ETFs – however, a contrarian investor might look to dividend stocks, which trade inversely to bonds. 

That's because dividend stocks offer some of the safety of bonds with a guaranteed return – assuming the stock's price doesn't go down. To further hedge against the risk of that happening, we decided to build a list of dividend stocks that were undervalued. 

To do that, we looked at levered-free-cash-flow, which is the amount of cash a company has on hand after paying off its costs and paying down its debt.

When a company has a high amount of cash relative to its enterprise value (another way of saying size), the company is said to be undervalued. 

We screened a list of all the dividend stocks that trade on major exchanges for stocks that trade between $5-$10 and have high amounts of levered-free cash flow. We were left with six companies on our list. 

Click on the interactive chart to view data over time. 

1. Cia Energetica de Minas Gerais ( CIG): Engages in the generation, transformation, transmission, distribution, and sale of electric energy primarily in Minas Gerais, Brazil. Market cap at $7.12B, most recent closing price at $5.66.

Levered free cash flow at $1.28B vs. enterprise value at $9.01B (implies a LFCF/EV ratio at 14.21%).  

Dividend: 1.61%

 

2. Electro Scientific Industries Inc. ( ESIO): Provides high-technology manufacturing equipment to the semiconductor and micro-electronics markets. Market cap at $279.2M, most recent closing price at $9.29.

Levered free cash flow at $33.79M vs. enterprise value at $175.98M (implies a LFCF/EV ratio at 19.2%). 

Dividend: 3.21%

 

3. Harte-Hanks Inc. ( HHS): Operates as a direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to local, regional, national, and international customer and business-to-business marketers. Market cap at $505.45M, most recent closing price at $8.08.

Levered free cash flow at $95.63M vs. enterprise value at $526.70M (implies a LFCF/EV ratio at 18.16%).  

Dividend: 4.12%

 

4. MGP Ingredients Inc. ( MGPI): Produces ingredients and distillery products in the United States. Market cap at $97.12M, most recent closing price at $5.67.

Levered free cash flow at $17.33M vs. enterprise value at $132.36M (implies a LFCF/EV ratio at 13.09%).  

Dividend: .77%

 

5. North American Energy Partners Inc. ( NOA): Provides heavy construction and mining, piling, and pipeline installation services in Canada. Market cap at $237.42M, most recent closing price at $6.54.

Levered free cash flow at $64.10M vs. enterprise value at $336.03M (implies a LFCF/EV ratio at 19.08%).  

Dividend: .98%

 

6. RRSat Global Communications Network Ltd. ( RRST): Provides content management and distribution services to television and radio broadcasting industries. Market cap at $159.59M, most recent closing price at $9.20.

Levered free cash flow at $16.91M vs. enterprise value at $133.86M (implies a LFCF/EV ratio at 12.63%)

Dividend: 2.77%

(List compiled by James Dennin, a Kapitall Writer. Monthly returns sourced from Zacks Investment Research, all other data sourced from Finviz.)

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