My goal for my subscribers of Profitable Investing is to guide them to investments that will grow in value while paying ample dividends along the way. To get there, I have a couple of basic guideposts that can be relied upon to point the right direction with the right stocks.
In general, I look for stocks that pay, and can sustainably pay, better than average dividends. By focusing on dividends, it has been my experience that, through bull and bear markets, income provides the ability to be patient with volatile stock prices while income accrues inside portfolios, building up your overall balance.
I also look for stocks that are valued at discounts to what they should be priced at. This is done by varied processes that take into consideration how the underlying assets are valued against the stock price, as well as how the revenues of the company are valued against the price.
If you’ve been reading my contributions to InvestorPlace, you have regularly read how I write about some of the means of seeing how a company’s stock is a good value based on how its stock is valued on a price-book (P/B) or price-sales (P/S). The price-book takes the roughly net asset value of a company against the per-share value of the market capitalization. And the price-sales takes the overall revenue over the trailing twelve months against the per-share value of the market capitalization.
These are handy tools that are used to compare similar stocks in comparable industries. If we can buy stocks in good companies that are also at discounts to their peers in the market, we’re on the right track toward better returns. But even better is when we can buy stocks in good companies that, aren’t just at discounts to their peers’ stocks, but also, are at discounts to their book or sales values. This is when the stock market isn’t doing its job at pricing assets well — which sets us up to pick off great values!
Inside the model portfolios of Profitable Investing, there is a collection of stocks and closed-end funds that are trading at discounts to their book or sales that also pay nice dividends along the way. In this contribution, I’m presenting a few to take notice of in today’s market, and that make for great buys right now:
MFA Financial (MFA)
I’ll start with MFA Financial (NYSE:MFA). MFA Financial is set up as a real estate investment trust (REIT), but it doesn’t invest in properties … it buys and manages a portfolio of mortgage securities.
The portfolio generates an ample flow of dividends, which is currently running at a distribution of 20 cents per share for a yield of 11.00%.
It has a long history of success during all sorts of interest rate and credit market conditions in the mortgage market. This includes profitably navigating the credit crisis of 2007-2008.
And over the past ten years, shareholders have seen a return of 337.05% for an annual average equivalent return of 15.88%.
But what makes it a bargain is that you can buy MFA at a discount to its book value, with the price-book ratio sitting at 0.98 times. It makes for a buy in a taxable account under $8.00.
Compass Diversified Holdings (CODI)
Next is another great dividend payer in Compass Diversified Holdings (NYSE:CODI). This is a holding company set up under the Investment Company Act of 1940 as a passthrough company that avoids corporate income tax.
It passes through income to shareholders along with tax deductions now and again making the dividend income all the more valuable. As a holding company, it buys and owns a collection of consumer and industrial companies that it guides to better values and, occasionally, sells them for gains as well.
The dividend is sitting at 36 cents per share for a yield of 8.92%. And it, too, has a great track record with a ten-year return of 336.87% for an average annual equivalent return of 15.88%.
But what makes it a bargain buy is that the stock trades at a 40% discount to its trailing sales making it a buy ideally in a taxable account given the tax benefits of a passthrough under $17.00.
Walgreens Boots Alliance (WBA)
Last up is a traditional common stock from a well-established company — Walgreens Boots Alliance (NASDAQ:WBA).
Walgreens is a U.S. and European drugstore and pharmacy company. It has been acquiring and merging to enhance its footprint in local markets. The stock market hasn’t quite caught on to the strategy, though, despite sales gains the past year alone of 11.30%. Management is noticing, and they have been significantly adding to their own holding of the stock.
Despite the pullback last year, the stock has been a good performer with the past ten years showing a return of 252.30% for an average annual equivalent of 13.41%. Its dividend is currently running at 44 cents per share and has been climbing over the past five years on average by 7.11% for a current yield of 2.45%.
The stock though is still cheap, as it is valued at a 50% discount to its trailing sales. It makes for a bargain buy right now under $84.00 a share in a tax-free account.
All My Best,
Editor, Profitable Investing
Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above.
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