Deep Values with High Yields
11/08/2016 10:00 am EST
Investors should buy these "deep value" stocks while their yields are high and their shares are cheap; this will put you miles ahead of most investors who chase the hot stock of the minute, explains Bret Jensen, editor of Investors Alley Premium Digest.
I think income investors need to think outside of the box and explore other opportune areas to earn yield within the equity market. Here are the stocks that I invest in for dividends within my own portfolio.
Let’s start with General Motors (GM). Gas prices are likely to remain low which means the company’s overall sales mix will remain tilted to trucks and SUVs which have much, much higher profit margins than cars.
Car sales in Europe look to be on the mend and pent up demand should mean several years of slowly improving vehicle sales. The most bullish news, however is that they are killing it in China.
The company also continues to return cash to shareholders via stock buybacks and dividends. The shares yield 4.8% and sell for less than six times this year’s earnings. This is one of the best combinations of yield, growth, and value in the current market.
I also continue to like the lodging real estate investment trust sector for yield opportunities.
This is especially true as many names are 25% to 35% off from 52-week highs as fundamentals have deteriorated slightly as the economy has averaged only one percent GDP growth over the past three quarters.
There are solid long-term values here. Chatham Lodging Trust (CLDT) is one such name. I have owned the shares since they sold at $10 a piece in 2012. They now go for $18.00 a share even after their recent sell-off.
Dividends have more than doubled over that time frame and this entity now yields over seven percent and makes payouts monthly. It has an extremely solid management team and sells for under eight times FFO (Funds from Operations).
Hersha Hospitality Trust (HT) is a lodging REIT that is a recent addition into my income portfolio. It is valued similarly to Chatham and has a yield of six percent.
The REIT has also seen some insider buying of late as well which is always a good vote of confidence.
Finally, moving on to the beaten down biotech sector; one must like AbbVie (ABBV) at current levels. The stock yields more (3.7%) than a lot of Utility stocks at current prices.
It is also experiencing double-digit growth in earnings and revenue and goes for just over 12 times this year’s earnings per share. A more than solid combination of growth, income, and value.
By Bret Jensen, Editor of Investors Alley Premium Digest