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Prudent Picks: 18 Undervalued Dividend Ideas

08/22/2014 9:00 am EST


John Buckingham

Editor, The Prudent Speculator

Trying to predict how potentially market moving geopolitical events will play out is very difficult, which is why we continue to focus on the long-term prospects of our broadly diversified portfolios of undervalued stocks, suggests value investor John Buckingham, editor of The Prudent Speculator.

To be sure, there remains plenty of concern about the outlook for equities...and that is a good thing from our contrarian perspective.

Incredibly, there seems to be quite a crowd forming these days in supposedly safe US Treasuries, which have again become the beneficiary of the proverbial flight to safety.

The yield on the 10-Year Treasury recently hit its lowest level of the year at 2.34%, while the yield on the 5-Year ended at 1.54%.

Obviously, stocks are a highly volatile asset class, but one wonders why anyone with a long-term time horizon would opt for Treasuries at such low yields, especially with the Federal Reserve nearing the conclusion of the Quantitative Easing bond-buying program and the US economy showing signs of renewed vigor.

Treasuries don't quite yet offer reward-free risk, but we foresee significantly better returns over the next five-to-ten years on our broadly diversified portfolios of undervalued dividend payers.

Of course, given that dividend payouts are likely to rise in subsequent years, while the trailing-12-month yield on the S&P 500 (SPX) is 1.93%, stock prices need not post sizable increases to win a performance race against Treasuries. In fact, they likely need only not fall in price to prove victorious, a very low hurdle indeed.

To be sure, stocks and Treasuries are not necessarily substitutes for one another—but low yields on competing investments are major support for our bullish long-term equity thesis. After all, we suspect many folks would be even less enthusiastic about stocks if they could find a decent low-risk return.

Alas, looking at the ultimate risk-free investment, i.e. cash, money-market funds are today yielding 1 basis point (0.01%) on average, meaning that one's money doubles in 6,932 years!

Contrast those paltry prospects to the 500 basis points (5.0%) in 2007 and the 600 basis points (6.0%) in 2000 money-market-fund yields. At 5%, money doubles in 14 years, while it only takes 12 years to double at 6%!

So, which stocks might those who share our three-to-five year time horizon look to add to their portfolios these days? Below, we present a diversified listing of 18 undervalued names, each of which is actually down in price this year, while offering a dividend yield well in excess of that of the 5-year US Treasury.

AVX (AVX)-2.8%
CA (CA)-3.5%
ConAgra Foods (CAG)-3.1%
Coach (COH)-3.7%
Credit Suisse Group AG (CS)-2.8%
Deere & Co. (DE)-2.8%
Ensco PLC (ESV)-6.1%
Freeport McMoRan (FCX)-3.5%
General Electric (GE)-3.4%
MDC Holdings (MDC)-3.6%
Mosaic (MOS)-2.2%
Navios Maritime Holdings (NM)-2.7%
Old National Bancorp (ONB)-3.4%
Pfizer (PFE)-3.6%
Prudential Financial (PRU)-2.4%
SpartanNash (SPTN)-2.3%
Tidewater (TDW)-2.0%
Target (TGT)-3.6%

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