Three Dividend Payers Who Could See Significant Share Price Increases

The following post is written by Hank Coleman.

Dr-Pepper Snapple GroupDividend yield isn’t the only thing out there for investors to consider. What about capital appreciation? There are several stocks that are poised to see their share prices appreciate as well. They could not only earn you an excellent return with a dividend yield but will also provide you with a great return with their under valued share prices. These three dividend payers could see a significant share price increase over the next year.

One of the greatest attributes of dividend stocks is that they pay you to wait for their share prices to appreciate. But, these stocks listed below are poised to see their share prices rise maybe sooner rather than later.

Currently the S&P 500 is a dividend yield of 2.07% and a Price to Earnings (PE) Ratio of 18.59. The Dow Jones Industrial Average is comparable with a PE Ratio of 16.83 and a dividend yield of 2.35% according to the Wall Street Journal. All of these metrics are 12 month trailing and calculated from the beginning of August 2013.

In addition to comparing stocks to indexes, you can learn a lot by comparing these stocks to others in their respective industries. When you make these types of comparisons, you can get a sense of how far a company’s share price could appreciate.

So, here are three excellent companies that have both a dividend yield and PE Ratio better than their industry peers and their

Dr. Pepper Snapple Group (NYSE Symbol: DPS)

I’ve been a shareholder of Dr. Pepper Snapple Group ever since the soda maker spun off from Cadbury Schweppes in May 2008. Currently, Dr. Pepper Snapple Group provides a 3.39% dividend yield on a quarterly dividend of $0.38 per share.

Dr. Pepper has earnings per share (EPS) of $2.92 and a Price to Earnings (PE) Ratio of 15.34. Dr. Pepper’s chief competitors, PepsiCo, Inc. (NYSE Symbol: PEP) and The Coca-Cola Company (NYSE Symbol: KO) have a 19.87 and 21.27 PE Ratio respectively. With Dr. Pepper’s shares worth $44.83 on August 16th, 2013, Dr. Pepper’s share price could be worth $58.02 or even $62.11 if you applied Pepsi and Coke’s PE Ratios to its valuation.

There is plenty of room for Dr. Pepper’s share price to run. These PE Ratios show that Dr. Pepper Snapple Group could see a 30% share price increase.

Kohl’s Corporation (NYSE Symbol: KSS)

Kohl’s Corporation is a lower end department store that provides the typical fare of shoes, apparel, home products, and the like. The company currently operates over 1,100 stores in 49 states.

When you compare the Kohl’s Corporation to Target and Macy’s, you seem to think Kohl’s is undervalued. The Kohl’s Corporation has a current share price of $52.27 with a quarterly dividend of $0.35 and dividend yield of 2.68%. Its EPS is $4.27, and its PE Ratio is 12.23.

Based on Macy’s (NYSE Symbol: M) PE Ratio of 13.02 and Target Corporation (NYSE Symbol: TGT) and its PE Ratio of 16.11, Kohl’s should see a valuation of between $55.60 and $68.79 per share. That is a possible 30% increase from its current share price.

Corrections Corp. of America (NYSE Symbol: CXW)

Corrections Corporation of America is a real estate investment trust (REIT), which explains why its dividend yield is a little higher than other companies. Corrections Corporation of America owns and operates private prisons and correctional facilities around the country. In fact, they own 67 facilities in the United States.

Corrections Corp of America is another company that is undervalued when you compare it to others in its industry. Currently, Corrections Corp of America has share price of $33.37 as of August 16th with an EPS of $2.83, PE Ratio of 11.77, a quarterly dividend of $0.48, and dividend yield of 5.75%.

Another company in the industry is The Geo Group, Inc. (NYSE Symbol: GEO) that currently has a share price of $32.74, a quarterly dividend of $0.50, and a dividend yield 6.11%. The company has earnings per share of $2.63 and a PE Ratio of 12.44.

Based on this comparison, Corrections Corporation of America should be worth $35.21 per share. This is an almost 10% increase over its current share price.

Are dividend yield and PE Ratio the right metrics to watch for dividend stocks? What other metrics do you use to find the best undervalued stocks for your dividend portfolio? I’d love to hear your thoughts in the comment section.


Hank Coleman is a personal finance expert who writes about about finance, retirement, and investing on his blog, Money Q&A. Be sure to also follow him on Twitter @MoneyQandA and check out his podcast, “Your Money: Your Choices”, on iTunes.

2 Responses to “Three Dividend Payers Who Could See Significant Share Price Increases”

  1. Lee Veldkamp

    Aug 29. 2013

    Thanks for this great insight and analysis. I’m so happy I just found this blog. Will save me some time I hope.

    • The Dividend Ninja

      Aug 29. 2013

      Hey Lee,

      I think a much better approach is to have an investment plan to begin with, i.e. index investing, dividend investing, or just saving and reducing debt etc.

      Check out the blogs and books under the resources tab. :) Spend some time looking around at various ideas before investing your hard-earned money…

      I happen to like sticking with the big blue chips I know, i.e. Coke, McDonalds, my cell phone company, the banks here in Canada, etc. I don’t lose sleep holding these companies. These are great foundation stocks.

      I really do need a “Start Here” page, don’t I? ;)

      Cheers
      Dividend Ninja