Investing

4 Stocks to Buy That Are Cheap, Paying Dividends and Buying Back Shares

Lee Jackson

Published: September 6, 2016 10:25 am

Last Updated: January 13, 2020 3:53 am

When you have a bunch of positives in a stock thesis, the more the merrier, and the merrier the story, the better the chance for investing success. For instance, if you have a company with a very low valuation that is paying a dividend and buying shares back consistently, those stocks tend to outperform, and one top equity strategist found that stocks with those traits had 20% outperformance over time.

Steven DeSanctis from Jefferies is one of the best on Wall Street when it comes to looking for overall stock quality and value, and he recently carved out a list of stocks rated Buy at Jefferies that are reducing share counts, have a domestic focus for their business, and are of higher quality. We picked four that also pay dividends.

Dean Foods

This top consumer food stock makes sense for more conservative investors. Dean Foods Co. (NYSE: DF) is a food and beverage company that processes and distributes milk and other dairy and dairy case products in the United States. The company manufactures, markets and distributes various branded and private label dairy case products, such as fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products, as well as juices, teas, bottled water and other products.

Dean Foods offers its products under approximately 50 national, regional and local proprietary or licensed brands, and private labels, including DairyPure, TruMoo, Alta Dena, Berkeley Farms, Country Fresh, Dean’s, Garelick Farms, Land O’Lakes, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms, PET, T.G. Lee, Tuscan and others, and it is a top Jefferies food products pick for the rest of 2016.

Shareholders are paid a 2.1% dividend. The Jefferies price target for the stock is $23, and the Wall Street consensus target is $20.67. The stock closed most recently at $17.25.

Foot Locker

This athletic shoe retailer finally bottomed in June, but it still offers the best entry point in some time. Foot Locker Inc. (NYSE: FL) is a specialty athletic retailer that operates 3,419 stores in 23 countries in North America, Europe, Australia and New Zealand. It operates Foot Locker, Footaction, Lady Foot Locker, Kids Foot Locker, Champs Sports, SIX:02, Runners Point and Sidestep retail stores, as well as direct-to-customer channels, including Eastbay.com, FootLocker.com and SIX02.com.

Many Wall Street analysts feel that consumers are easily bearing price increases from the top companies like Nike and Under Armour. They also say that currently athletic apparel and footwear companies are continuing to see higher gross margins and return-on-invested-capital, which some think will be a source of multiple expansion. That could be just the ticket to get a further lift in the stock price. Plus, with the busy holiday season right around the corner, the timing looks very solid.

Foot Locker investors receive a 1.7% dividend. The $75 Jefferies price target is nearly in line with the consensus target of $75.47 The stock closed Friday at $66 a share.

Huntington Bancshares

This smaller cap bank could be an outstanding addition for more aggressive portfolios. Huntington Bancshares Inc. (NASDAQ: HBAN) operates as a holding company for the Huntington National Bank, which provides commercial, small business, consumer and mortgage banking services. Its Retail and Business Banking segment offers financial products and services, including checking accounts, savings accounts, money market accounts, certificates of deposit, consumer loans and small business loans, as well as investments, insurance, interest rate risk protection and foreign exchange and treasury management services.

The company’s Commercial Banking segment provides corporate risk management and institutional sales, trading, and underwriting services; commercial property and casualty, employee benefits, personal lines, life and disability, and specialty lines of insurance; and brokerage and agency services for residential and commercial title insurance, as well as excess and surplus product lines of insurance.

Huntington also offers automotive and commercial real estate financing, and a regional private bank and private client business.

Investors receive a 2.8% dividend. The Jefferies price objective is $12, and the consensus target is lower at $10.55. The stock closed last Friday at $10.02.

Packaging Corporation of America

This company has seen some insider selling recently. Packaging Corp. of America (NYSE: PKG) manufactures and sells containerboard and corrugated packaging products in the United States, Europe, Mexico and Canada. The company’s Packaging segment offers various corrugated packaging products, such as conventional shipping containers used to protect and transport manufactured goods; multi-color boxes and displays that help to merchandise the packaged product in retail locations; and honeycomb protective packaging.

This segment also produces packaging for meat, fresh fruit and vegetables, processed food, beverages and other industrial and consumer products. Two other segments also contribute significant revenue.

The Jefferies analysts have noted in the past that the company’s Boise purchase in 2013 is still yielding benefits as it continues to improve operations. With a solid and consistent franchise and a reliable dividend, it makes good sense for more conservative accounts.

Investors are paid a solid 3.16% dividend. Jefferies has an $85 price target, and the consensus target is $77.43. The stock closed Friday at $79.67.

These are four of the best smaller cap stocks doing a majority of their business in the United States that all pay dividends and are buying shares back. With total return remaining a solid investment path for equity investors, these all are good selections for buy-and-hold portfolios looking to add alpha.