What does “on the cheap” mean in the stock market? To me, it means stocks which are valued not only below fair market values when looking at assets and revenues, but also when looking at the proven progress underway in the company.
So far this year, the general stock market has been on a tear. The S&P 500 has climbed in price by 21% year-to-date.
But I can easily steer you to a collection of stocks with much more reasonable, and even ample, dividend yields. And this is a collection of stocks that are performing — but are also still values to buy right now.
Dividend Stocks to Buy: AllianceBernstein (AB)
Dividend Yield: 7.5%
AllianceBernstein (NYSE:AB) is a pass-through company in the asset management business. The key thing about asset managers is knowing the value of assets under management. They don’t have to be exceptional in their investing — just good enough to attract and keep assets on which they earn fees year-in and year-out.
AllianceBernstein’s assets under management has climbed 25.8% over the trailing four years to a current $581 billion. That has resulted in revenue gains for the same period of 30.1%. This in turn is driving higher returns for shareholders with the return on equity running at 14.9%. But the real deal is that the shares trade at a discount to revenue by some 18.7% making the shares cheap.
AB stock has been a good performer with the trailing five years generating a total return of 60.4% with an average annual equivalent of 10.4%.*
*All total return figures were calculated by Bloomberg Terminal, factoring in dividends reinvested on the day of distribution.
Compass Diversified (CODI)
Dividend Yield: 7.6%
Compass Diversified (NYSE:CODI) is an investment holding company set up under the Investment Companies Act of 1940. As such it operates without paying federal corporate income taxes, meaning that CODI has more cash for dividend payments to investors.
The company buys and owns a collection of well-branded industrial and consumer goods companies. And it in turn works with management teams to further develop business values. From time to time, Compass Diversified will sell the companies when appropriate. Along the way, CODI collects cash flows from the operating companies and in turn pays an ample dividend currently yielding 7.6%.
Revenues are firmly on the rise with the trailing year’s sales gain at 33.2%. Margins are positive, helping to drive a return on shareholder equity of 39.3%.
And the stock is very cheap as it is valued at a 30% discount to trailing sales — which as noted are firmly on the rise.
Compass Diversified continues to deliver with shares generating a total return over the past five years of 62.1% for an average annual equivalent return of 9.9%.
W.P. Carey (WPC)
Dividend Yield: 4.7%
W.P. Carey (NYSE:WPC) is a highly successful real estate investment trust with a diverse collection of properties across segments. But these properties all have in common is the company’s signature structure of triple-net sale-leasebacks. This is where W.P. Carey typically acquires a property from a significant company — or even government entity — and in turn leases it back to the seller for long-term lease. In addition, the tenant pays the taxes, insurance and general upkeep costs, hence the term “triple-net.”
This structure has major benefits. To start, W.P. Carey gets established tenants for their leased properties. And with longer-term leases it sets the company up with more dependable income. With the expenses of taxes, insurance and maintenance it reduces costs and uncertainty for the company.
Revenues are up for the trailing year by 4.4%. The return on funds from operations, which measures the profitability of just running the properties, is at a very healthy 12.8%.
The dividend is yielding 4.7% and the actual distributions have been rising each and every quarter for years. Some estimate that it has been raising dividends since 2001. The stock has generated a trailing five year total return of 77.2% for an average annualized equivalent return of 12.1%.
And despite the quality of the company’s assets and performance along with that rising dividend distribution, the stock is cheap compared to the general REIT market — as measured by the Bloomberg U.S. REIT Index. The stock’s price is at a mere 2.2 times book which is significantly cheaper than the general market average of 2.74 times. This make W.P. Carey a cheap stock with great assets and a rising dividend.
TPG Specialty Lending (TSLX)
Dividend Yield: 7.5%
TPG Specialty Lending (NYSE:TSLX) provides financing and capital to a variety of companies. TPG Specialty is part of the famous TPG Capital, formally called the Texas Pacific Group. Texas Pacific Group is one of the largest and more successful private equity firms in the world — and TPG Specialty draws talent and resources from that relationship.
Revenues are up on a tear with the trailing year climbing by 24.2%. Its net interest margin, which measure the difference in funding costs against interest earnings, is running at 10% and it keeps its efficiency ratio humming at a profitable 31.5% which means that it costs only 32 cents to earn each dollar of revenue.
The company has generated a return of 90.7% over the trailing five years for an average annual equivalent of 13.8%.
It pays regular dividends quarterly, providing a yield of 7.5%. But it also regularly pays additional dividends from ongoing profits for a current annual yield of 8.63%.
In addition, since it is also set up under the Investment Companies Act of 1040 and the Small Business Investment Incentives Act of 1980 — it avoids federal income taxes — leaving more cash to feed that dividend. The company is cheaply run with great margins and a great dividend stream, making for a good value right now.
Dividend Yield: 3%
American Telephone & Telegraph referred to as Ma Bell, or now as AT&T (NYSE:T), is a well-known company. It offers wired and wireless communications, internet and data transmission, satellite and cable content distribution as well as streaming. And oh yes, it comes with a huge content warehouse and generator in WarnerMedia.
The direct comparison is Verizon (NYSE:VZ) which is a good dividend stock. But AT&T is way, way cheaper. AT&T’s stock is valued at a mere 1.5 times book which is way cheaper than Verizon’s stock value of 4.4 times book.
Revenue is rising with the trailing year up by 6.4%. And while the company has a lot of components, overall operating margins are running at a fat 15.3% which in turn drives a nice return on equity running at 9.5%.
It has built up debt in its acquisition of Time Warner — but it is manageable at only 33.2% of its assets.
The stock has trailed Verizon until recently. Elliott Management announced that it has amassed $3.2 billion of the company’s stock. Activist investor Paul Singer wants AT&T to hone its focus and sell some of its superfluous operations. And the market likes what it sees.
Over the past five years, the stock has returned 46% for an average annual equivalent return of 7.9%. But for the year-to-date, the stock has returned 34.7%.
The dividend is running with a yield of 5.3%. Good and rising dividends, a stock that’s cheap compared to its prime rival and a shake-up potentially in the works make AT&T a good buy right now.
And now that I’ve presented some dividend stocks on the cheap, perhaps you might like to see more of my market research and recommendations for further safer growth and bigger reliable income. Click here to learn more.
Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above.
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