5 Cheap High Dividend Stocks for 2017
Cheap High-Dividend Stocks for 2017
The focus of this article will be companies that offer a high dividend yield and could see stock price appreciation in 2017. There are stocks that are mentioned that are yielding more than seven percent in dividend yield.
With dividend-paying stocks, the return is based upon the stock’s price gain and income generation. In other words, the return of the stock will be calculated based on the income return and stock price appreciation.
The return based on the dividend is already known when the investment is made in the stock. This is because of the dividend yield, which represents the income-based return. The yield is calculated by taking the annual dividend payment and dividing it by the price at the time of purchase.
For example, let’s say a stock was purchased at $10.00 and the annual dividend that is paid is $0.55. In this case, the dividend yield would be 5.5% ([$0.55 ÷ $10.00] x 100%).
The other side of the calculation is based on the stock price gains. Determining the gain on a stock is pretty easy; simply take the current stock price and subtract it from the price the shares were acquired at. The next step would then be to divide it by the purchase price. Let’s use the above $10.00 example again. If the stock was trading at $12.50, the return would be 25% ([$12.50 – $10.00] ÷ $10.00 x 100%) and the total return would be 30.50% (25% + 5.5%).
Now, as mentioned earlier, the dividend yield is available before an investment is made. Therefore, the only unknown would be how the stock price will perform. There are many different methods used to determine if a stock is trading at a reasonable price and if an investment makes sense.
If a stock is purchased at a cheap valuation, then there is a higher probability of seeing a capital gain based on the price increasing. This is compared to purchasing a stock when it is overvalued.
The tricky part is finding stocks that would be considered cheap. That’s why I will now be going through how to find cheap stocks in the hopes that you can generate better capital gains in your investment portfolio.
How to Determine if a Stock Is Cheap
Finding cheap stocks does not mean finding stocks that are trading at the lowest price. There is a little more work required, but it’s not too difficult to understand and apply to stocks.
Each stock that generates earnings will have a trading multiple, known as the price-to-earnings (P/E) ratio. The P/E ratio for a stock is calculated by taking the stock price and dividing it by the company’s annual earnings.
This ratio is used to make a comparison to companies in the same sector. The intent is to find the businesses with the cheapest valuation, as well as growth to look forward to.
For example, say there are three companies that operate in the same sector, with an industry average P/E ratio of 25 times.
|Stock||Current Trading Price||Annual Earnings||Price-to-Earnings (P/E) Ratio||Valuation|
Stock A: Even though stock A is trading at the highest price per share, it would be considered the cheapest based on its valuation. If the shares were purchased at $150.00, then a P/E ratio of 15 would be paid based on earnings; this is less than the industry average of 25. Therefore, it makes sense to purchase stock A.
Stock B: The valuation for stock B is exactly that of the industry average. This would mean the shares are currently trading at $25.00 and are fairly valued.
If the shares were purchased, it means that they should trade in line going forward.
Stock C: This stock is overvalued compared to its peers. Normally, a company would be overvalued because investors expect a higher growth rate from the investment. The one thing to remember is that there are a lot of expectations for future earnings.
The management team would need to execute their business plans to a tee; if there are any hiccups along the way, the stock price could drop. There is a high probability of the price decreasing because of the high P/E ratio, unless good news is followed by even more good news.
Why a Company Would Be Trading at a Cheap Valuation
A company could be trading at a cheap valuation for a couple of reasons. One could be that the market is simply unaware of the company, so it is under-owned by investors. Another reason could be bad news hitting the company, such as a poor earnings release, a delay in a product launch, or an impact from negative currency exchange.
However, all these reasons for the stock trading lower are short-term. Over the long term, there could be opportunities to acquire shares at a cheap valuation. Since the focus would be on dividend-yielding stocks, the income-based return would be higher. The reason for this is that as a stock price decreases, the return based on the income yield would reflect a higher number when calculated.
Below is a list of some of my favorite cheap high-dividend stocks.
List of Cheap High-Dividend Stocks
|Company Name||Stock Symbol||Price||Dividend Yield||P/E Ratio||Industry P/E Ratio|
|Manhattan Bridge Capital Inc.||LOAN||$5.20||7.69%||13.5||21.3|
|Brookfield Property Partners LP||BPY||$22.73||5.19%||10.3||42.6|
|New York Community Bancorp, Inc.||NYCB||$13.80||4.93%||13.7||16.4|
|Greenhill & Co., Inc.||GHL||$28.35||6.35%||15||23.7|
|TC Pipelines, LP||TCP||$60.91||6.17%||19.1||106.4|
1. Manhattan Bridge Capital Inc.
Manhattan Bridge Capital Inc. (NASDAQ:LOAN) is a real estate company that focuses on creating, servicing, and managing a portfolio of mortgages. The main objective of the company is to grow the loan portfolio, with a focus on preserving the capital through certain risk-adjusted returns.
Manhattan Bridge Capital pays out a quarterly dividend, which has increased 900% since 2013. The current dividend yield is 7.69%, based on the trading price of $5.20.
The company’s balance sheet shows evidence of a focus on ensuring financial discipline across the business. Manhattan Bridge Capital only holds a small amount of debt, which is being used wisely. And with little obligation towards debt repayment, there is a possibility of seeing future dividend growth.
2. Brookfield Property Partners LP
Brookfield Property Partners LP (NYSE:BPY) is a global real estate company with a presence in the U.S., the U.K., Brazil, and Asia. Its unique properties include Class A office buildings, self-storage, multifamily residents, and student housing.
There are three reasons to be bullish on BPY stock. The first is the dividend payment, which is paid quarterly and reviewed annually. Shares are currently yielding 5.19%. Also, being an investor in a dividend growth stock such as BPY means the average yield on the purchase price would increase for as long as the shares are held.
The second reason is the cheap valuation. According do the the P/E ratio, Brookfield is trading at an approximate 75% discount.
The last reason would be the assets within the portfolio. It would be very difficult for retail investors to reproduce the portfolio of assets owned by Brookfield. The properties are located around the world in cities with low vacancy rates, which is why the dividend payment is able to increase.
3. New York Community Bancorp, Inc.
New York Community Bancorp, Inc. (NYSE:NYCB) is a bank that operates in the U.S. It offers traditional banking products and services such as bank accounts, mortgages, and investment products.
The one major positive catalyst for NYCB stock is raising interest rates. These will impact the whole business in a positive way, including gross and net income, and raise the share price over the long term.
As savers and investors go to the bank to purchase and put their money in products such as savings accounts, money market investors, or certificates of deposit (CDs), there is an interest rate paid out. Then, the bank lends to another customer that is in need of some sort of loan, in which case the customer will be paying an interest rate.
The interest rate paid by the borrower is higher than what is being paid to the saver or investor. The difference in the interest rate is called the net interest margin, which should expand as interest rates increase.
4. Greenhill & CO., Inc.
Greenhill & Co., Inc. (NYSE:GHL) is an investment bank that advises on domestic and cross-border mergers and acquisitions and capital rising. Its global presence extends to countries such as Brazil, Canada, Germany, and China, though it is headquartered in the U.S.
GHL stock is trading at a very cheap valuation based on its P/E ratio of 15 times, which is much less than its peers’ average of 23.7 times.
I believe that the market is ignoring the company because of its size. The businesses that compete directly with Greenhill & Co. are on the Fortune 500, making them some of the largest companies in the U.S.
Another reason why investors are ignoring GHL stock is the numbers. This is reflected in the return on assets, return on equity, and return on investment, which are all higher than its peers. Also, the amount of debt held compared to the company’s total assets is much lower than others in the industry as well.
Until the market becomes aware of this unique stock, an income could be earned through the dividend. GHL stock’s dividend has historically been steady continued to reard shareholders.
5. TC Pipelines, LP
TC Pipelines, LP (NYSE:TCP) is a pipeline energy company which is headquartered in Texas. TC owns four pipelines, which are spread across the U.S.
TC operates in a competitive environment known as an oligopoly. An oligopoly is when only a few other companies can directly compete with each other. This protects the earnings of the companies in question, as well as their percentage of the market share. And since TC Pipelines operates in the pipeline segment, there is no concern about capital spending.
New competition is even less likely given that entry into the pipeline business is very capital-intensive. Infrastructure and acquiring land rights are very expensive necessities when entering the industry. However, once this spending is completed, pipeline businesses require very little capital for operations.
TC Pipelines rewards shareholders with a dividend, with TCP stock featuring both a high dividend yield and strong growth. The dividend yield is 6.17%, based on a trading price of $60.91.