We like to see stocks which pay good dividend yields, but also have good business prospects. While a simple stock screen isn’t something you want to follow blindly, it can be a good starting point to find companies deserving of more analysis. We’ve also tried to pick stocks from our screen that operate in industries with relatively low competition, and while the companies we’ve eventually selected do face some competition we’ve managed to exclude (for example) some retailers who face severe threats from companies such as Amazon. According to data from Fidelity, here are five possible picks to research further which have five-year PEG ratios of at most 1.2, dividend yields of at least 3.5%, and market capitalizations of at least $2 billion:
First on our list is chipmaker Intel Corporation (NASDAQ:INTC). The company’s closest rival in its core microprocessors business, AMD, has been struggling recently and arguably has always had difficulty matching Intel’s product line. At a market cap of nearly $120 billion, Intel is well capitalized and its dividend yield of 3.9% means that investors can reliably expect a good deal of cash from the company on a regular basis. Given Intel’s trailing earnings multiple of 10 and moderate growth expectations from sell-side analysts, its five-year PEG clocks in at 0.8. Investors are therefore buying both value and income with a purchase of Intel Corporation (NASDAQ:INTC) (read our analysis of Intel from earlier this month).
There are only two certain things in life, and one of them- taxes- is why we’re pretty sure $4.5 billion market cap H&R Block, Inc. (NYSE:HRB) will still be doing business for the foreseeable future. The company faces some competition (particularly from software such as Intuit’s Turbotax), but less so than many other companies and the barriers to entry- an encyclopedic knowledge of the U.S. tax code- are high. Wall Street analysts’ consensus expectations imply a PEG of 1.2; normally a stock needs to be around a PEG of 1 to be marked as “value” but thanks to the high dividend yield of 4.8% we’ll give it a little wiggle room. Lee Ainslie’s Maverick Capital initiated a position during the second quarter.
Regal Entertainment Group (NYSE:RGC)’s industry faces challenges, but the company grew its earnings last quarter compared to a year ago and there are significant barriers to entering the cinema business. What really puts the stock on this list, however, is its dividend yield of 6%. Higher than that of any other company on our list of “buy and hold forever” stocks, it is particularly attractive given the low interest rate environment in the U.S. Wall Street analysts think the company is safe: they give the stock a growth trajectory which results in a PEG of 1.1.
Kinder Morgan Inc (NYSE:KMI) owns and operates a network of oil and gas pipelines throughout North America. New entrants can get into this business, but they would need a lot of capital to do so and so we’d consider the industry as featuring high barriers to entry (we’re also pretty sure Americans will need oil and gas to be transported for the next several years). At a $38 billion market cap, Kinder Morgan’s five-year PEG ratio is 1.2. It wouldn’t make the list if it weren’t for the 3.9% dividend yield, which completes our list of reasons to consider an investment in the company.
We’re a bit worried about the degree of competition that Seagate Technology PLC (NASDAQ:STX) is going to encounter in the data storage business, but we just couldn’t leave it off this list. It’s got a great dividend yield at current prices (4.3%). According to the Street it is remarkably underpriced compared to its future earnings (five-year PEG of 0.2). It is well capitalized ($12 billion market cap). Anything else? Well, billionaire David Einhorn’s Greenlight Capital increased its stake by 60% during the second quarter to a total of over 23 million shares and it is now the second largest position in the fund’s portfolio.
