Large caps do not always trade at a fair value. Often, they are overvalued with their price driven by high investor confidence. Sometimes, they are considerably undervalued, allowing a lot of room for further growth. One of the metrics to measure if a stock is under- or overvalued is the Graham number. According to Benjamin Graham, considered the father of value investing, the Graham Number is the maximum price that a value investor should pay for a given stock, based on its earnings per share (EPS) and book value per share (BVPS). A stock whose share price is below the Graham Number is considered to be undervalued. The formula for the Graham Number = SQRT (22.5 x EPS x BVPS).
The article discusses 3 undervalued large-cap stocks trading in the utilities industry, which pay high... Read more
The most important determinant of a stock’s return is the price investors pay for it. There are globally-known companies with good quality and management, yet their stock prices do not reflect their growth potential and/or competitive position. It is also essential to understand that some companies are riskier than others and therefore a larger margin of safety is required to invest in them. The Graham number measures the fundamental value of a stock by taking into account earning per share (EPS) and book value per share (BVPS) and indicates the highest price a defensive investor would pay for the stock. Any stock price below the Graham number is considered undervalued, thus leaving room for higher return on investment. The formula for the Graham Number = SQRT (22.5 x EPS x... Read more
Understanding how to estimate dividend-paying companies can provide investors with an insight into how dividends can lead to return growth. Most investors believe that high dividend yields suggest a good return on investment. However, if a dividend yield is considerably higher than the industry average, it may simply mean that the stock is underpriced. Therefore, more important than the dividend yield is a consistent dividend growth.
Below is a summary of three small-cap stocks that trade in the consumer goods sector of the auto parts industry. All three stocks have a market cap of less than $1 billion, they operate in the U.S. and internationally and they generate a consistent dividend.
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Small- and mid-caps are turning into important dividend payers. For investors with a long-term horizon and willing to undertake a certain level of risk (mainly to leverage market volatility), indexes like the Russell 2000 might be a good choice for higher growth. Furthermore, it’s no secret that small- and mid-caps often outperform their large-cap peers by achieving higher returns, leaving more room for higher dividends. Indeed, 324 of the 600 companies in the Russell 2000 index pay out a dividend, according to S&P Dow Jones Indices. This accounts for over 50% of the companies in the small cap index.
This article compares two mid-cap stocks trading in the consumer goods sector of the tobacco industry to Philip Morris. Both mid-caps have outperformed Philip Morris with... Read more
One of the fastest-developing industries in the financial markets is biotechnology. One of the biggest challenges that the biotech companies face is high R&D costs and the need for a steady revenue stream to finance their operating activities while waiting for FDA drug approval. This makes them heavily reliant on the public markets to finance the development and manufacturing of innovative medicines.
On the upside, the biotech sector remains attractive for retail investors in spite of its high-risk. According to McKinsey, in December 2014, biotech companies accounted for the 20% of the entire pharma market with global revenues of $163 billion, while their annual growth rate was +8%, double than conventional pharmaceutical companies.
This article summarizes three mid and... Read more
Last week, China unexpectedly devalued the Yuan in an effort to make the Chinese economy more competitive and boost its exports. The move of the Chinese Central Bank, although described as temporary, has shocked the global markets pushing stocks and commodity prices sharply lower and created a fear for global currency war that would destabilize more economies around the world.
On the upside, small and mid-cap stocks that consistently pay a steady stream of income on a regular basis have become more attractive in such a distressed global financial environment with high exposure to risk. Especially, lower oil prices have increased the demand for imported oil from China, thus raising the spot rates for oil tankers.
This article summarizes three small and mid-cap stocks that... Read more
According to research done by TheRoyceFunds, 54% of the S&P Small-Cap 600 Stock Index have an average dividend yield 2.3%, almost in line with 2.4% of the S&P 500. The S&P 500 includes companies with an average dividend yield below 2%, whereas 38.5% of the 600 Small-Cap companies have consistently paid dividends for five straight years (at least). Furthermore, it is estimated that the average annual total return for Small-Cap Russell 2000 Index is 9.5% from 1993 to 2014, whereas the average annual total return for small-cap dividend payers is 11.2% versus 8.1% for the non-dividend payers over the same period.
Below we summarize three high-yield dividend paying small-caps from different sectors.
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Historically, small cap stocks realize high returns but are also extremely volatile. For long-term investors who are not interested in double-digit growth every quarter, preferring a relative stability in earning potential, there are small-cap stocks in the financial sector that can meet their needs.
Below is a summary of four small-cap stocks in the Financial Services sector. Based on their consistency in dividend paying, low volatility (average beta 0.85) and a low payout ratio (average 48.8%), all four stocks could be included in a growth portfolio.
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Evidence shows that low beta stocks with realistic P/E ratios can diversify a stock portfolio and generate growth dividends. Medium cap stocks may be less trendy than large cap stocks, but often they outperform their growth-oriented peers. This happens because growth is not fail-safe in a volatile market.
There are three factors that one should look at when selecting a dividend paying stock. The first factor is the payout ratio, which suggests how well a company’s earnings can support its dividend payments. The lower the payout ratio, the more guaranteed the dividend. However, payout ratio should be evaluated in relation to EPS. The second factor is the 52-week high and low range. There is an inverse relationship between the stock price and... Read more
Investors' portfolios have witnessed a paradigm shift in variables. The conventional investment instruments such as bank deposits, Certificate of Deposits (CDs) and bonds have been replaced with high paying dividend instruments. Of-late REIT instruments have seen a lot of traction of investors. This is solely because of the improving housing market that has lifted investor sentiment to a new high. The dividend yields of a couple of REITs are in the double digits. Seeing such a performance, it is quite natural for an investor to get attracted towards such an instrument, especially considering the fact that the interest rates are at record low of 1%.
Mortgage REITs versus equity REITs
REITs can be divided in two... Read more