Fundamentally strong companies trading at a valuation gap with visibily healthy cash flows
There are some high-quality dividend stocks listed on the exchanges. These stocks represent large companies with strong fundamentals. However, it’s relatively challenging to find low-price dividend stocks that have good fundamentals. It’s a bonus if these dividend stocks under $10 trade at a valuation gap.
This column focuses on three low-price undervalued dividend stocks that are worth holding for the next 24 to 36 months. Considering the valuation gap, I expect these stocks can deliver 100% total returns within the investment horizon.
Besides the above factors, the advantage of low-price stocks is that a diversified portfolio can be created even with limited funds. Low-price dividend stocks are therefore attractive for small investors. I must add here that I have discussed one blue-chip dividend stock that is trading under $10. Let’s focus on the fundamental reasons that make these stocks worth considering.
Panasonic Holdings (PCRFY)
Panasonic Holdings (OTCMKTS:PCRFY) stock is a blue-chip name that is trading under $10. At a forward price-to-earnings ratio of 7.5, PCRFY stock looks undervalued and offers a dividend yield of 2.34%. I would not be surprised if the stock delivers total returns of 100% in the next 36 months.
From a growth perspective, Panasonic has ambitious plans. By 2031, the company intends to quadruple its battery capacity to 200 gigawatt hours (). This will translate into healthy revenue growth and potential EBITDA margin expansion.
Further, Panasonic has been an innovator and this factor will ensure the company maintains or increases its market share. Panasonic is planning to increase battery energy density by 25% by the end of the decade coupled with an increase in battery productivity.
Diversification is another factor that is likely to fuel growth. By 2029, Panasonic intends to produce solid-state batteries for drones and factory robots. There is likely to be a big addressable market for these industry segments and Panasonic is positioned to benefit.
Nordic American Tankers (NAT)
Nordic American Tankers (NYSE:NAT) is among the best dividend stocks under $10. It is worth noting that NAT stock trades at an attractive forward price-to-earnings ratio of 8.1. Further, the stock has a dividend yield of 5.74%. Given the valuations, I would expect high total returns in the next 12 to 24 months.
As an overview, Nordic American is an operator of crude oil tankers. With geopolitical tensions, I expect day rates to remain firm. This will continue to benefit Nordic American as the company delivers healthy free cash flows.
To put things into perspective, Nordic reported average time charter equivalent () rates of $31,235 per day per ship for the third quarter of 2023. For the same period, the operating cost per day per ship was $9,000. Therefore, if TCE rates remain around these levels, dividends will be sustained.
I must add here that Nordic reported net debt of $170.8 million as of Q3. This translates into debt of $9 million per ship. Leverage is not significant and Nordic intends to reduce debt in the coming years. As credit metrics improve, NAT stock is likely to trend higher.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) stock is another undervalued dividend stock under $10. Currently, KGC stock trades at a forward price-to-earnings ratio of 12.7 and offers a dividend yield of 2.23%. With a positive outlook for gold, I am bullish on healthy dividend growth as cash flows swell.
As an overview, Kinross is a gold miner with an investment-grade balance sheet. As of last year’s third quarter, the company reported a liquidity buffer of $2 billion. This is likely to be used for aggressive exploration activity in addition to pursuing potential acquisition.
It’s also worth noting that for Q3, Kinross reported operating cash flow () of $406.8 million. Further, the free cash flow ( ) for the quarter was $122.9 million. With upside in gold pricing present, the annual OCF for this year will likely be close to $2 billion and FCF will be approximately $500 million. Therefore, financial flexibility is high for dividend growth and investments.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.