Stocks that trade for attractive valuations are getting harder to find in today’s market. The Dow Jones Industrial Average and the S&P 500 are teetering near all-time highs. Moreover, the Federal Reserve’s easy monetary policy of low interest rates has helped push up asset prices across the board.
Put it all together, and you’d think that finding reasonably valued stocks is hard to do. You’d think this would be even more difficult amid smaller stocks, which often hold higher valuations than the overall market due to their stronger growth potential. Never fear, investors: there are still a few small stocks out there that aren’t overpriced, and provide the margin of safety of regular dividend payments.
Three candidates to get you started
Bob Evans Farms Inc (NASDAQ:BOBE) reported 1% growth in same-store sales, a measure that includes growth at locations open at least a year, in fiscal 2013. Moreover, the company expects non-GAAP earnings per share to fall between $2.60 and $2.67 in fiscal 2014. The stock trades for 17 times the midpoint of its profit outlook.
Bob Evans Farms Inc (NASDAQ:BOBE) has raised its dividend annually since 2007, and yields roughly 2.3% at current prices. Last year, the company gave its investors a solid 10% dividend hike, and will likely raise its payout again in time for its next quarterly payout.
Aside from the drama surrounding recent events, The Men’s Wearhouse, Inc. (NYSE:MW) has a great story to tell. From its humble beginnings as one small Texas store, the company eventually grew to become one of North America’s biggest men’s clothing stores with more than 1,100 locations. The company also operates the K&G brand.
Total net sales for the first-quarter increased 5.1%, and The Men’s Wearhouse, Inc. (NYSE:MW) achieved 25% growth in diluted earnings per share during the first three months of the year. The company racked up 11% growth in GAAP diluted EPS last year, and is committed to returning meaningful cash to shareholders.
At the end of last year, the company’s Board of Directors approved a new $200 million share buyback program, and the company pays a 2% dividend to shareholders.
While I’d recommend investors wait for the dust to settle before jumping in, there’s no denying this is a highly profitable, growing company.
Speaking of highly profitable specialty retailers, Foot Locker, Inc. (NYSE:FL) is a $5 billion retailer of athletic footwear and apparel. Foot Locker, Inc. (NYSE:FL) reported fiscal 2012 net income of $2.47 per share, which represented a 36% improvement year over year. Same-store sales increased 9.4% last year. In addition, the company produced 14.2% return on invested capital in fiscal 2012.
Despite Foot Locker, Inc. (NYSE:FL)’s strong growth numbers and extremely effective management, the stock remains attractively priced. Foot Locker, Inc. (NYSE:FL) hasn’t rallied extensively in recent months and still trades for only 13 times its 2012 net income per share.
Making things even better, the company is generous to its shareholders. Foot Locker, Inc. (NYSE:FL) recently increased its dividend 11%. The new $0.80 per share annualized dividend represents a yield of nearly 2.5% for new investors. Furthermore, along with the recent dividend increase, the company announced it had authorized a new $600 million share repurchasing program to further enhance shareholder returns.
Going forward, Foot Locker, Inc. (NYSE:FL) management points investors to its recent $94 million acquisition of Runners Point, which will enhance the company’s position in Germany and provide additional expansion of its European business.
The Foolish bottom line
Buying stocks while they’re cheap is a great way to insulate yourself against market volatility. If you do some research into stocks that are trading for valuations below that of the broader market, you can provide yourself a margin of safety. Furthermore, if you focus on dividend-paying stocks, you can provide your portfolio an additional layer of stability through reliable quarterly returns.
You’re probably well aware of the market’s best-known dividend stocks, but you might not be aware of smaller dividend payers such as these. Each of these stocks trades for more attractive valuations than the S&P 500, which has a P/E of roughly 17, and these stocks provide investors with solid dividend yields. In addition, each of these companies is fairly well-known, and carries a brand name that is bigger than their market values might suggest.
Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article These Small Stocks Are Both Value And Income Plays originally appeared on Fool.com is written by Robert Ciura.
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