Top 29 Undervalued Dividend Stocks Amongst US Stock Sectors

By kleyraustria

Oct 06, 2016 06:00 AM EDT

It is a fact that dividend stocks are hot this year. More so, some of world market experts are telling investors of all category to be more careful. Specifically, investors are taught and advised to identify companies that have high potential increase instead of finding those with high profit.

Explored by MarketWatch, writer Jeff Reeves and Bob Phillips, the managing principals of Spectrum Management Group, this ideal came about. However, there was some overlap between their stock recommendations.

More so, in the report, Bob Phillips claimed that the most important factor when considering a dividend stock is the likelihood of big dividend increases over time. Rising dividends are much more likely if a company's free cash flow or the remaining cash flow after capital expenditures leaves plenty of so-called headroom for higher dividend payouts.

He furthered that it is important not to overpay for a stock, which may be a tall order considering that we're seven years into a bull market and that this year's market gains have been driven by dividend stocks.

The report took a more keen evaluation into the S&P 1500 Composite Index, which includes the S&P 500 Index SPX, +0.43% the S&P 400 Mid-Cap, Index MID, +0.52% and the S&P Small-Cap 600 Index. This is to identify well the possible dividend-stock bargains in every sector.

In each of the 11 sectors, what came to the list are the top three companies with forward price-to-earnings ratios. This is based on compromised 2017 earnings estimates that are lower than the aggregate. The said 11 companies also have dividend yields of at least 3%, with headroom to raise dividends, based on free cash flow yields, and are expected by analysts to increase their sales by at least 1% in 2017.

Philipp Van Doorn and the rest of his team calculated free cash flow yields by dividing free cash flow per share for the past 12 months by the closing share price on Sept. 30.

It is given that any screening approach has its flaws. An example for this is a company trading at a low price-to-earnings ratio relative to peers could have some major problems.

To make things clearer, here are all 29 stocks that passed the screen, broken down by sector:

Consumer discretionary

In comparison, the S&P 1500 consumer discretionary sector trades for 17.1 times weighted consensus 2017 earnings estimates.

Consumer staples

The consumer staples sector trades for 19.4 times weighted consensus 2017 EPS estimates.


The energy sector trades for 34.6 times weighted consensus 2017 EPS estimates.


The financial sector trades for 12 times weighted consensus 2017 EPS estimates.

Health care

The health-care sector trades for 15.1 times weighted consensus 2017 EPS estimates.


The industrial sector trades for 16.4 times weighted consensus 2017 EPS estimates.

Information technology

The information-technology sector trades for 16.8 times weighted consensus 2017 EPS estimates.


The materials sector trades for 16.1 times weighted consensus 2017 EPS estimates.

Real estate

The real-estate sector trades for 17 times weighted consensus 2017 FFO estimates. FFO stands for funds from operations. This non-GAAP figure adds depreciation and amortization back to earnings, while excluding gains or losses on the sale of investments. FFO is meant to gauge dividend-paying ability, and is used by most REITs.

Telecommunications services

The telecommunications-services sector trades for 13.6 times weighted consensus 2017 EPS estimates.


The utilities sector trades for 17.5 times weighted consensus 2017 EPS estimates.


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