Value Stocks with Juicy Payouts

S&P finds 18 undervalued names that offer promising price appreciation and above-average dividend yields

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':

• Price-to- cash-flow ratio of 12.824

• Price-to- 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
Company Ticker S&P STARS Rank
Alcoa AA 4
BCE BCE 5
ChevronTexaco CVX 5
Chubb CB 4
Constellation Energy CEG 5
Endesa ELE 5
Endurance Specialty Holdings ENH 4
Glatfelter GLT 4
Goodrich GR 4
Great Plains Energy GXP 4
Lance LNCE 4
Lincoln National LNC 4
Lubrizol LZ 4
Manor Care HCR 4
Marathon Oil MRO 4
ONEOK OKE 4
RPM International RPM 4
Xcel Energy XEL 4

De Guia is an analyst for Standard & Poor's Portfolio Advisors

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