The first-quarter earnings season has gotten off to a great start as banks have been crushing Wall Street analyst estimates. The results so far look like a precursor for a strong earnings season. These results, along with robust economic data, show the economy is improving rapidly. This has boosted not only confidence in investors, but also corporate management teams.
As companies increase their earnings, many are expected to use that extra cash to reinstate or increase their dividend payouts. Investing in dividend stocks is a great way for investors to generate income. Still, an even better strategy is to invest in dividend stocks with high upside potential.
I find that stocks trading below the average of their analyst price targets offer a great chance for price gains in the months ahead. So, I ran a screen for dividend stocks trading at least 13% below their average target price and rated a Buy or Strong Buy in our POWR Ratings system. EOG Resources, Inc. (EOG), America Movil (AMX), and Toyota Motor Corporation (TM) are three top dividend stocks that fit the bill, which is why I am highlighting them below.
EOG Resources, Inc. (EOG)
EOG is an oil and gas producer with acreage in several U.S. shale plays, including the Permian Basin, the Eagle Ford, and the Bakken. In fact, it is one of the largest independent exploration & production companies operating in the United States. The company derives almost all of its production from shale fields in the U.S.
The company recently announced plans to shift its strategy to something it calls “double premium,” which means developing wells that deliver a 60%+ after-tax rate of return at $40 WTI crude oil. The “double” is twice its original premium strategy from five years ago when it aimed for a 30% return. EOG is also one of the most proficient operators in the business, with initial production rates from its shale wells that consistently exceed the industry average.
The company has a dividend yield of 2.4% and is currently trading 16.3% below its average analyst target price. EOG has an overall grade of B, or Buy rating in our POWR Ratings system. The company has a Growth Grade of B, as analysts expect earnings to rise 161.8% year over year in the quarter that just ended in March. Its earnings are forecasted to jump 647.8% year over year in the quarter ending in June.
EOG also has a Quality Grade of B, which indicates a healthy balance sheet. The company had $3.3 billion in cash at the end of the year, compared with only $781 million in short-term debt. If you would like to access the rest of EOG’s grades (Value, Momentum, Stability, and Sentiment), click here. EOG is ranked #6 in the Energy – Oil & Gas industry. For more top stocks in the industry, click here.
America Movil (AMX)
AMC is the largest telecom carrier in Latin America, serving approximately 270 million wireless customers across the region. In fact, it dominates the Mexican wireless market with a 63% customer share. The company also provides fixed-line phone, internet access, and television services in most countries it operates.
The company’s unmatched scale in the telecom market in Latin America bodes well for its prospects. Its competitive advantage is so strong that it can increase prices to offset local inflation and currency weakness. Plus, the company’s market share in Mexico is expected to expand due to the recent reduction in competition in the wireless business.
AMX has a dividend yield of 2.6% and is trading 30% below its average analyst target price. The company has an overall grade of B, a Buy rating in our POWR ratings service. It has a Value Grade of B as the stock exhibits a low valuation based on various valuation metrics. For instance, its forward P/E is a paltry 11.39.
AMX also has a Growth Grade of B, which isn’t surprising as analysts expect its earnings to soar 173.3% year over year in the quarter that just ended. We also provide grades for AMX based on Momentum, Stability, Sentiment, and Quality. You can find those here. AMX is ranked #4 in the Telecom – Foreign industry. For more top stocks in that industry, click here.
Toyota Motor Corporation (TM)
TM is one of the largest automakers in the world, with over 10 million units sold last year. Its brands include Toyota, Lexus, Daihatsu, and Hino. The company has close to a 50% market share in Japan, and its portfolio includes a full range of models from passenger cars and minivans to trucks and accessories. TM is also working on fuel cells and automated vehicles.
Similar to most automakers these days, TM plans to offer an electrified model or an electrified option for customers of Toyota or Lexus models by 2025. Its long-term growth is expected to be supported by its electric initiatives. The company is looking to achieve 40% of global sales from electric vehicles by 2025 and nearly 70% by 2035. TM is also working on hydrogen fuel stations and partnering with Hino to manufacture a heavy-duty hydrogen fuel cell electric truck.
TM has a dividend yield of 2.7% and is trading 13% below its average target price. The company has an overall grade of B or a Buy rating in our POWR Ratings system. TM has a Momentum Grade of B, which makes sense as the stock has shown bullish momentum over the past month. The company also has a Sentiment Grade of A as fourteen out of twenty analysts rate the stock a Buy or Overweight.
To access the rest of TM’s grades (Growth, Value, Stability, and Quality), click here. TM is ranked #20 in the B-rated Auto & Vehicle Manufacturers industry. For other top stocks in this industry, click here.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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