3 Interesting Stocks With Yields Over 5%

These 3 stocks have yields well over 5%, but their valuations are also very inexpensive. In fact, all of these stocks have yields that are higher than their four-year historical average yields. The 3 stocks are: 

• Verizon Communications (VZ): Verizon has a 5.7% dividend yield and is cheap at just 8.3x earnings. It’s worth much more.
• MDC Holdings (MDC): MDC is a major homebuilder that still pays a healthy dividend yielding 5.5%. It’s also cheap at just 3.6x earnings forecast for this year.
• Oaktree Specialty Lending Corp (OCSL): Oaktree is a specialty lender for private equity transactions. It has an attractive 9.8% dividend yield, well above its historical average of 7.7%.

Let's take a further look at these undervalued stocks.

Verizon Communications (VZ)

Yield: 5.72%

Verizon Communications is in the process of ramping up its 5G investments, which uses a lot of its operating cash flow. But its earnings and cash flow are still growing and leave enough room to pay its huge dividend. Right now 22 analysts forecast on average that Verizon earnings will rise 2.2% to $5.53 per share next year, up from $5.41 this year.

This puts VZ stock on a forward P/E multiple of just 8.3x this year, and 8.1x next year. Moreover, its $2.56 annual dividend is still less than half of the company’s earnings (47%). As a result, VZ stock has a dividend yield of 5.7%.

This yield is much higher than its average over the past four years, or 4.42%. 

In fact, if the price had the same 4.42% yield now, this implies the stock would be higher.

For example, dividing the $2.56 dividend per share by 4.42% results in a price target of $57.92. That is over 29% over Monday’s close. This makes it one of the top undervalued dividend stocks.

MDC Holdings (MDC)

Yield: 5.5%

MDC Holdings is a major homebuilder that uses the Richmond American Homes name. It operates in 16 states from Arizona to Oregon and Washington and eight other Western and Midwestern states, as well as Maryland, Pennsylvania, Virginia, Tennessee, and Florida.

MDC stock is now down over 34% YTD as of July 26. Nevertheless, analysts still forecast positive profits both this year and next.

For example, six analysts forecast earnings of $10.21 per share this year and $10 next year. That puts the stock on a forward P/E multiple of 3.6x times this year.

Moreover, MDC can easily afford to pay its annual dividend of $2 per share The forecast of $10.21 for this year more than covers this by 4x. In fact, MDC stock now has a 5.5% dividend yield.

That yield is significantly higher than its historical average of 3.56% over the past four years. 

Using that yield, the average price target is $56.18. That is more than 54% over Monday’s close of $36.43. This makes MDC Holdings one of the most attractive and undervalued dividend stocks.

Oaktree Specialty Lending Corp (OCSL)

Yield: 9.8%

Oaktree Specialty Lending Corp is a business development company (or BDC) that lends out money to middle-market companies. It focuses on transactional lending, such as bridge financing, and mezzanine debt, senior and junior secured debt.

In addition, it helps companies fund expansions, acquisitions or management-led buyouts. Many of its lending clients come from the private equity side of its parent company’s business.

As a result, the company has solid earnings and pays a generous dividend of 66 cents annually. This gives Oaktree Specialty Lending Corp an attractive dividend yield of 9.8%.

This is well covered by the forecast 2022 earnings of 71 cents per share for this year. Moreover, the stock trades on a reasonable price-to-earnings (P/E) multiple of just 9.4x.

Moreover, over the past four years, its average yield has been 7.7%, well below today’s 9.8% rate. 

That means that OCSL stock is too cheap. If it were to have a yield of 7.7% with the same 66-cent dividend, its price would be 27% higher at $8.57 per share.

Bottom line: These 3 stocks are deeply undervalued, with huge yields, well over 5%, and trade well over their historical dividend yields, making them worth substantially more than their prices today.

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