By Numer de Guia, CFA Attractive valuations and above-market dividend yields. The combination sounds enticing: the chance to realize capital appreciation on a stock while getting paid to own it -- at a payout rate greater than the average of that for the S&P 500-stock index.
That notion animates this week's screen. First, we set to work on the value part. But this time around, we wanted to go deeper than just
price-earnings ratios. We wanted to find stocks that were valued below the market by three other yardsticks. So we mined our database for those issues currently trading below the S&P 500 based on the index':
cash-flow ratio of 12.824
book value ratio of 2.967
Price-to-sales ratio of 1.514
But of course, an undervalued stock will stay that way unless it has potential to close the gap through capital appreciation. So we then screened for issues ranked 4
STARS (accumulate) or 5 STARS (buy) by Standard & Poor's equity analysts. Stocks with those designations are expected to outperform the overall market over the next 6 to 12 months.
Then we took care of the yield part. We sifted for stocks with a dividend yield higher than the S&P 500 average of 1.643%.
When we finished our search, 18 names emerged:
LOW VALUATION, ABOVE-AVERAGE YIELDS
S&P STARS Rank
Endurance Specialty Holdings
Great Plains Energy
De Guia is an analyst for Standard & Poor's Portfolio Advisors