The topsy-turvy, one of a kind 2020, taught investors the importance of diversifying and holding some stable income generating investments. With interest rates remaining near zero, in order to diversify their portfolio and survive the ongoing market volatility, investors should consider dividend paying stocks. It’s also important to enter stocks at reasonable prices to provide the potential for capital appreciation.
After the record-setting rally post mid-March, September witnessed tech-led market corrections with investors’ concerns over stalled fiscal stimulus talks, the upcoming election, and ever increasing coronavirus cases across the globe. With concerns over these issues still remaining intact, this roller coaster market ride is expected to continue at least for the remainder of this year.
Keeping this in mind, I have selected three financially sound dividend paying stocks that are currently trading at low valuations: Hanesbrands Inc. (HBI), Rent-a-Center, Inc. (RCII), and OneMain Holdings, Inc. (OMF).
Hanesbrands Inc. (HBI)
HBI is a manufacturer and marketer of leading everyday basic apparel under some of the world’s strongest apparel brands in the Americas, Europe and Asia, as well as in Australia and South Africa. The company’s iconic innerwear and activewear apparel brands found in the United States and elsewhere include Hanes, Champion, Playtex, Bali, Maidenform, JMS/Just My Size, Wonderbra and Gear for Sports. Outside the United States, HBI also has dominant national and regional brands, including DIM, Nur Die/Nur Der, Lovable, Abanderado, Shock Absorber, Zorba, Sol y Oro, Rinbros, Track N Field and Ritmo.
On October 8th, HBI announced new, wide-ranging 2030 global sustainability goals that include a commitment to setting science-based environmental targets, a goal of improving the lives of at least 10 million people, and addressing the use of plastics and sustainable raw materials in products and packaging.
For the quarter ending June 2020, HBI reported total revenue of $ 1.73 million, experiencing a marginal dip of 1.7% year-over year. EPS for the quarter came in at $0.60, exceeding the consensus estimate by 957.1%. The company’s second-quarter global online sales increased more than 70% and US Innerwear segment results benefited from better-than-expected apparel performance and significant sales of protective garments (cloth masks and medical gowns). This segment’s revenue increased by 61% and operating profit increased by 104%. Innerwear basics gained more than 300 basis points of market share in the quarter, and Innerwear intimate apparel point-of-sale trends returned to pre-COVID levels entering July.
As per the market consensus, the company’s revenue is expected to grow 4% next year. The company’s EPS is expected to grow 12.5% next year and at a rate of 2% per annum over the next 5 years.
HBI has been consistently paying quarterly dividends since 2013. On September 1, the company paid a dividend of $0.15, which cumulated to an annual dividend of $0.60 and yields 3.5%. The company’s 3-year and 5-year divided CAGRs stand at 10.9% and 14.9%, respectively.
HBI recorded free cash flow of $0.13 million in the second quarter, generated $65.4 million as cash flow from operations and returned $ 52.2 million to its shareholders in the form of dividends. In terms of the forward P/E ratio, HBI is currently trading almost at 12, 48.4% lower than the sector median. The stock has gained 132.9% since hitting its 52-weeks low in the first week of April.
How does HBI stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
The stock is also ranked #5 out of 65 stocks in the Fashion & Luxury industry.
Rent-a-Center, Inc. (RCII)
RCII is an industry leading omni-channel lease-to-own provider for the credit constrained customer. The company provides its customers an opportunity to obtain ownership of high-quality, durable products via small payments over time under a flexible lease-purchase agreement and a no long-term debt obligation. Preferred Lease provides virtual and staffed lease-to-own solutions to retail partners in stores and online enabling its partners to grow sales by expanding their customer base utilizing RCII’s differentiated offering.
For the second quarter ending June 2020, RCII reported consolidated revenue of $684 million, up 4.2% year-over-year. For the quarter, e-commerce sales grew by more than 60% and the company experienced strong demand for home products, furniture, and appliances. EPS for the second quarter came in at $0.80, exceeding street estimate by 33.3%.
As per its latest release, the company increased full-year 2020 guidance and expects to report annual revenue in the range of $2.78 to $2.83 billion, non-GAAP diluted EPS between $3.15 to $3.45, and free cash flow between $155 to $180 million.
The market expects RCII’s revenue to increase 8.2% in the current quarter and 5% in the current financial year. Next year, revenue is expected to grow 6.3%. The company’s EPS is expected to increase 104.3% in the current quarter and 46.4% in the current fiscal year. The EPS is expected to grow at a rate of 5% per annum over the next five years. The stock has gained around 130.3% since hitting its 52-weeks low in March.
Except for 2018, the company has been consistently paying quarterly dividends since 2010. Most recently, the company declared a dividend of $0.29, to be paid on 26th October, which cumulates to an annual dividend of $1.16 and yields 3.4%. The 3-year divided CAGR stands at 1.4%.
RCII recorded free cash flow of $3.75 million in the last reported quarter, generated $207.3 million as cash flow from operations, and returned $15.6 million to its shareholders in the form of dividends. In terms of the forward P/E ratio, RCII is currently trading at 10.45, almost 56% lower than the sector median.
RCII’s POWR Ratings reflect its promising outlook. It has an overall rating of “Strong Buy” with an “A” in Trade Grade, Peer Grade, and Buy & Hold Grade and a “B” in Industry Rank. Among the 34 stocks in the Specialty Retailers industry, it’s ranked #9.
OneMain Holdings, Inc. (OMF)
OMF is a leading provider of responsible personal loan products, primarily to non-prime customers. OMF has a network of approximately 1,500 branch offices in 44 states. The company’s digital platform provides current and prospective customers the option of easily applying for a personal loan through the company’s website.
In connection with personal loan business, insurance subsidiaries offer customers optional credit and non-credit insurance, and other products. Additionally, OMF services loans owned by the company itself and service loans owned by third parties. OMF is also involved in pursuing strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets.
For the second quarter ending June 2020, the company reported net revenue of $386 million, which is a decline of 23.4% year-over-year. OMF reported an EPS of $0.8, exceeding the street estimate by a whopping 281%.
The market expects OMF’s revenue to increase 5.6% in the current financial year. The company’s EPS is expected to grow by 38% in the next financial year and at a rate of 11.8% per annum over the next five years. OMF hit its 52-week high of $48.92 in mid-February before the onset of the pandemic, but lost around 75% since then to its 52-week low of $12.2 in March. The stock has gained more than 196.2% since its March low.
The company started paying dividends in 2019. Most recently, the company paid a dividend of $0.33 which got paid in August. This cumulates to an annual dividend of $1.32 and yields 3.63%.
OMF recorded free cash flow of $4.76 million in the last reported quarter, generated $639 million as cash flow from operations, and returned $44 million to its shareholders in the form of dividends. In terms of the forward P/E ratio, OMF is currently trading at 9.91, 15.3% lower than the sector median.
OMF’s POWR Ratings reflect its promising outlook. It has an overall rating of “Buy” with an “A” in Trade Grade and a “B” in Peer Grade, Buy & Hold Grade, and Industry Rank. Among the 46 stocks in the Industrials – Consumer Financial Services, it’s ranked #18.
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HBI shares were trading at $17.20 per share on Monday afternoon, down $0.01 (-0.06%). Year-to-date, HBI has gained 20.34%, versus a 11.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Madhavi Taneja
Madhavi is a seasoned financial analyst with a focus in valuing early-stage technology companies and evaluating potential mergers and acquisitions. After majoring in economics, she developed a deep understanding of investment strategies while working with EX Service. More...
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