Four Cheap Dividend Payers
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I was working with some stock screens recently in a search for “cheap” dividend payers. I like to keep my searches simple, so I only included three criteria: a reasonable market cap, a share price “close” to book value, and a dividend yield at or above 4%.
Although keeping my screens so simple often requires more legwork on my part to sort out the stocks I'm interested in from those that I don't want to examine further, I find that being too stringent with screening criteria often creates a list that is too small and filled with anomalies. The screen I ran turned up over 50 stocks, which I went through one by one. While I found that four of the stocks that caught my eye were from one sector, which is often a sign of an investment opportunity, there were four others that also stood out: Cliffs Natural Resources (NYSE: CLF), Daimler AG (NASDAQOTH: DDAIF), AXA Group (NASDAQOTH: AXAHY), and Lexmark International (NYSE: LXK).
Cliffs Natural Resources
Cliffs is one of the largest iron miners in the world, with a massive presence in North America. After a share price run that lasted from 2009 to 2011, Cliff's shares have been mired in a downtrend. The biggest factor behind this is the recent weakness in iron ore prices driven by slowing global growth, particularly in China. The company's fortunes are more closely tied to iron ore prices than many of its competitors because the vast majority of its revenues come from the sale of the commodity (most industry participants have more diversified product portfolios).However, Cliffs is also less efficient than many of its peers, so its tie to the vagaries of this commodity are doubly strong.
Another drag on the shares right now is the company's coal assets. While not the most important factor in Cliffs' overall results, coal is so unloved right now that just about anything associated with it is considered tainted. Right now is probably not the best time to buy Cliffs Natural Resources, unless you are extremely bullish on iron ore prices.
German based Daimler AG is probably best known for its Mercedes-Benz brand and its failed attempt to turn Chrysler around. However, the company also makes the tiny little Smart car, trucks, buses, and vans. In addition, it has small ownership stakes in Renault, Nissan, Tesla Motors, and others. In addition to its automotive investments, it also owns a material stake in defense and aerospace firm EADS. Despite its very public failure with Chrysler, Daimler is a relatively well run company with a great reputation around the world.
A leader in the high-end of the auto market, the company is probably less sensitive to economic fluctuation than some of is competitors. Still, economic weakness in Europe has been an issue for the company of late, hindering recent results. While this isn't a positive, it could be a buying opportunity, since the shares are trading for about half of what they were changing hands at five years ago. The nearly 4.5% yield is similarly enticing.
AXA sells life insurance, property and casualty insurance, and annuities around the world. It also owns a massive stake in AllianceBerntein. The insurance business is simple on a conceptual level, but incredibly complex on a financial level. Oversimplifying the business model, insurers basically make money by investing the money they charge customers for insurance. The goal is to make more money investing than a company has to pay out in claims. AXA has struggled of late because some of its products weren't as profitable as it had planned. Management is taking steps to fix its internal issues, but that likely won't be enough to turn the share price around. While a dividend yield approaching 5% might be enticing, material operations in Spain and Italy have left the company with a great deal of exposure to two very weak countries. This one is probably best left alone for now.
Lexmark International makes printers, often seen as a lowly accessory to the personal computer. Although the company is moving away from the consumer market, it still has a material position in the business sector and a large footprint in international markets. The business market is more profitable than the consumer market, even though it is highly competitive. An uptick in competition of late has hampered Lexmark's results and, thus, sent its shares lower. With a material installed base of printers all continuing to use Lexmark supplies, however, the company appears to have a solid core business. Printers are not glamorous, but they aren't likely to go away any time soon (though printers are definitely going the way of the buggy whip some day). Investors willing to hitch on to a boring, older technology that is in slow decline, could benefit from this company's cash cow business and near 5% dividend yield.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!