3 Dividend Stocks That Are Reasonably Valued

Casey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

This week the S&P 500 index ended lower than it started, at one point dipping down to 1497 before closing at 1515. There's no doubt that valuations are higher than they were three months ago. Many seem to be waiting for a dip, and if this week's one was it, it indeed was a shallow one.

For those who are feeling nervous that the ship has already sailed, all is not lost! There are a few stocks that are priced reasonably and have pulled back. Today I will look at three dividend-paying stocks that are on sale and have sound businesses. I believe they could be added today.

 Realty Income (NYSE: O) - Dividend Yield: 4.9%

Realty Income Corp, a retail Real Estate Investment Trust [REIT] with a market cap of under $6 billion, is known as "The Monthly Dividend Company." They acquire and own commercial real estate, collect rent and distribute dividends monthly. They own over 2500 properties in 49 states spread to over 100 tenants in long-term, triple-net lease agreements.

Realty Income has paid over 500 consecutive monthly dividends and has increased its dividend over 60 times. Unlike many other REITs, Realty Income did not have to cut its dividend during the "Great Recession." They are a consistent company. This consistency comes from targeting retail tenants in non-discretionary markets, with low price-points and services which can't be bought on the internet.

In its most recent board meeting, Realty Income raised its monthly dividend from $0.15 to $0.18, increasing the yield to around 4.9%. Investors can take advantage of this generous dividend and feel reassured by its long history of maintaining these payouts.

 

Looking at the above chart, we can see that Realty Income is at or near its highs. This is because the increased dividend has put a higher floor under the stock price. Even with the higher price, the current dividend yield is among the highest in its recent history.

ConocoPhillips (NYSE: COP) - Dividend Yield: 4.55%

ConocoPhillips explores for and mostly produces crude oil, natural gas and natural gas liquids. They have recently spun off their refining assets into Phillips66, thus becoming an independent Exploration and Production company. In an effort to reposition themselves for growth and higher margins, ConocoPhillips has been selling off non-core assets and focusing on North American unconventional plays and other projects mostly in OCED countries.

This turnaround has taken time and asset sales have effected production. Some investors have been disappointed or have gotten scared by their funding gap, resulting in a relatively depressed stock price. Meanwhile, however, management has been moving assets and increasing production according to plan. Asset sales will ensure that the dividend is well covered while the company repositions itself. The new ConocoPhillips will be centered around the following five areas:

  • North American oil and gas shale plays
  • Canadian oil sands
  • Australian LNG
  • North Sea oil on both the UK and Norwegian side, and finally
  • Malaysian Deepwater

When all the dust is settled, ConocoPhillips should have higher margins and long term production growth of 3-5%. Last but not least, it will be able to grow its already industry-leading dividend. I believe that ConocoPhillips represents good value right now.

B&G Foods (NYSE: BGS) - Dividend Yield: 4.0%

B&G Foods makes, sells and distributes a range of shelf-stable food and household products. They grow not by creating huge, global brands but by levering up their balance sheet and acquiring smaller brands. The acquired brands tend to be number one or number two in their markets and the company tries to buy them at lower multiples so as to achieve very strong margins.

Their business model is to take well-known, yet neglected brands from larger companies and to add "pizazz" to turn them around. Being smaller brands, they do not need much marketing expenditure. This leads to EBITDA margins which are higher than most other foods companies and significant cash flow which can be used to pay dividends and make additional acquisitions when needed. Some of these brands you might know are: Mrs. Dash, Baker's Joy, Molly McButter, Kleen Guard, Static Guard, Cream of Wheat and Ortega.

Their latest acquisition of Old London, New York Style and Culver brands have accounted for nearly all of B&G's growth in the last year. To be sure, this is a slower-growth company with a higher level of debt. If you are OK with these things, B&G provides high EBITDA margins and lots of cash to shareholders.

The stock has pulled back on disappointing earnings results as sales volume actually declined when new acquisitions were taken out. I believe B&G's tenured senior management will be able to turn things around and the result will be substantial rewards for shareholders.

Summary

My article is meant only to be an introduction to the above companies and a reminder that their prices are very reasonable. The intent is to be a jumping point for further research. These companies don't come without risk. ConocoPhillips does currently have a funding gap. I believe they will get past the funding gap and be in a great position in the future. B&G does have a lot of debt but I trust their long-tenured management to grow cash flow from accretive acquisitions. All companies here, I believe, are great companies and are available at a discount.


HoerthCM has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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