Investing

The Market Is Pricey, but These 4 Dividend Stocks Are Still Dirt Cheap

courtesy of Intel Corp.

Any way you look at the metrics, the stock market is very pricey on a historical basis. While not every sector is, the S&P 500 as a whole is, driven by huge premiums in utilities, telecoms and consumer staples. Premiums are generated by investors starved for yield and buying stocks in those sectors in lieu of bonds with historically low coupons.

The key for investors is to find cheap stocks in sectors that are still reasonable. Consumer discretionary and technology are cheaper than their averages over the past 25 years, so we screened the Merrill Lynch research data base for stocks in those sectors, that were still cheap and rated Buy. We found four that look outstanding, and all have dividends that are higher than the current 30-year U.S. Treasury, which is currently yielding a paltry 2.25%.

GameStop

This top retailer looks to benefit from new releases. GameStop Corp. (NYSE: GME) operates as an omnichannel video game retailer. It sells new and pre-owned video game hardware; physical and digital video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, memory cards and other add-ons for use with video game hardware and software; and digital products, including downloadable content, network points cards, prepaid digital and subscription cards and digitally downloadable software.

The company also sells mobile and consumer electronics, including smartphones, tablets, headphones and accessories, as well as pre-owned smartphones; personal computer (PC) entertainment software in various genres, including sports, action, strategy, adventure/role playing and simulation; and strategy guides, magazines and gaming-related toys. As of January 30, 2016, it operated approximately 7,117 stores in the United States, Australia, Canada and Europe. GameStop primarily offers its products under the GameStop, EB Games and Micromania names.

Leading Wall Street analysts feel that hardware updates and the holiday release slate this year should help the gaming segment. In addition, the second-half hardware refreshes and fourth-quarter high-quality product releases could help drive traffic to the stores. We recently covered its benefits from the recent Pokémon craze and also the company’s big expansion plans.

GameStop investors receive a 5.15% dividend. The Merrill Lynch price target for the stock is $35 and the Wall Street consensus price objective is $34.90. Shares traded down fractionally to $28.66 on Monday morning, after closing down over 10% on Friday after reporting a disappointing quarter.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.

Intel reported an inline second quarter, but data center sales came in way below expectations for the tech giant. But a new partnership with Microsoft for virtual reality and a consistent shift away from reliance on chips for personal computers keep the stock a compelling buy.

Intel investors receive a 2.95% dividend. Merrill Lynch has a $42 price target, and the consensus target is $37.58. The shares traded Monday morning at $35.46.
Kohl’s

This top retailer has rallied recently but still offers investors a solid entry point. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States. It offers private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices. As of March 3, 2015, it operated 1,162 department stores in 49 states.

The company reported much better-than-expected second-quarter profit, helped by better control over inventories and warm weather that boosted sales of summer clothes and accessories. But the company lowered its earnings guidance for the year ending January 2017.

Kohl’s shareholders receive a 4.5% dividend. The $50 Merrill Lynch price target compares with the consensus price target of $47.10 and the most recent close at $44.54.

Qualcomm

This top technology has performed very well this summer. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies. The company includes the licensing business, QTL, and the vast majority of its patent portfolio. Its subsidiary Qualcomm Technologies operates substantially all of Qualcomm’s engineering, research and development functions, as well as substantially all of its products and services businesses, including its semiconductor business, QCT.

The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA (Code Division Multiple Access) technologies. The company recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide the company with a huge leg up in years to come.

Qualcomm reported third-quarter revenue and earnings that beat Wall Street estimates. Fourth-quarter guidance was also better than expected. In China, new semiconductor products are gaining share and management is making better progress with royalty collections.

Qualcomm investors are paid a 3.38% dividend. The Merrill Lynch price objective is $65. The consensus target is $62.27. Shares traded at $62.77 Monday morning.

In an expensive market, it makes sense to stick with companies that are trading at a discount to their historical averages. While these stocks are not suited for more conservative accounts, they make good addition to growth and income portfolios with a higher risk tolerance.

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