Investing

3 Dividend Stocks Trading at 5-Year Lows Could Have Big Upside Potential

Lee Jackson

Published: September 23, 2016 10:05 am

Last Updated: January 13, 2020 3:14 am

The often asked question when the markets continue to hit or trade at all-time highs is what and where to look for ideas, especially if dividends are important? Chasing the bond proxy stocks looks like less than stellar idea at this time, and if rates do move higher later this year and in 2017, they could get hammered. Investors with a touch more risk appetite may want to look at stocks hitting five-year relative lows that still pay dividends.

A recent Jefferies research note had a list of stocks hitting five-year relative lows and highs. While it’s a good bet momentum traders are interested in stocks hitting the highs, we were intrigued by three stocks on the list that we found were rated Buy by major Wall Street firms even as they are hitting five-year relative lows.

Frontier Communications

Many top analysts have remained very positive on this rural local exchange carrier. Frontier Communications Corporation (NASDAQ: FTR) offers residential services, such as fiber-to-the-home and fiber-to-the-node broadband, as well as traditional copper-based broadband products; and commercial services, including Ethernet, dedicated Internet, multiprotocol label switching, time division multiplexing, data transport services, and optical transport services.

Frontier also provides Frontier Secure suite of products for computer security, cloud backup and sharing, identity protection, equipment insurance and technical support. Its unified messaging services include call forwarding, conference calling, caller identification, voicemail and call waiting services. It also offers long distance network services and packages of communications services.

The company reported solid numbers in the first quarter, but the second quarter print was messy and the stock has been hit hard. The company has guided in line to ahead of Wall Street estimates on post-Verizon deal cash flow. Frontier is the highest yielding non-energy component in the S&P 500, and most big firms see the dividend easily covered by current cash flow.

Shareholders a paid a huge 9.7% dividend. Merrill Lynch rates the stock a Buy with a $7.50 price target. The Wall Street consensus target is $5.85. Shares closed Thursday at $4.33.

Staples

The company is struggling to regain lost ground after a judge ruled against the mega-merger it had planned with Office Depot. Staples Inc. (NASDAQ: SPLS) is the leading U.S. retailer of office supplies, with a significant presence in Canada and a growing presence in Europe.

The company sells office products, furniture, computers and business machines, and operates in three segments through multiple channels: North American Retail (with approximately 1,600 stores), North American Direct (catalog and contract) and International Operations (nearly 300 retail stores, catalog and internet businesses).

While the disappointment in the failed merger jolted shares somewhat back in the spring, the company has added product lines to compete with Amazon. The company also was one of the earlier e-commerce adopters and doesn’t lag behind Amazon’s capabilities like some of other traditional retailers. For instance, Staples’ same-day delivery option this year will be able to get packages to customers’ doors in two hours.

Staples shareholders receive a solid 5.6% dividend. Merrill Lynch has the stock rated Buy with a $10 price target. The consensus price objective is $9.45, and the shares closed Thursday at $8.55.

T. Rowe Price

The Jefferies analysts feel that this top financial services company has very good upside potential. T. Rowe Price Group Inc. (NASDAQ: TROW) provides its services to individuals, institutional investors, retirement plans, financial intermediaries and institutions. Through its subsidiaries, it launches and manages equity and fixed income mutual funds. The company also launches balanced mutual funds and private equity funds. It invests in the public equity and fixed income markets across the globe. It also invests in alternative markets, including currency markets, and it employs fundamental and quantitative analysis with a bottom-up approach.

Jefferies likes the stock and has it rated at Buy. The analysts have cited continued share repurchases and flows into what they define as “other portfolios” as positives for the company. They also see operating margins improving by 2% quarter over quarter as assets levels have rebounded.

Shareholders are paid a very solid 3.25% dividend. The $83 Jefferies price objective is well above the consensus target of $73.92. Shares closed on Thursday at $66.82.

Three stocks ranging from pretty conservative to aggressive that are all trading at five-year relative lows. While not suitable for all investors, they are probably worth a shot for more aggressive growth and income accounts.