Chuck Royce’s 5 Dividend Value Stocks

Page 1 of 2

Chuck Royce is President and Co-Chief Investment Officer at Royce & Associates, LLC and President of The Royce Funds, a family of funds focused on the smaller-capitalization market. Royce has nearly five decades of investment experience and four decades as smaller-company value portfolio manager. Throughout his career he has applied a disciplined value approach in selecting winning small-cap stocks that produce strong total returns. Royce co-manages with Jay Kaplan a specialized value-oriented and dividend-focused mutual fund, the Royce Dividend Value Fund (RYDVX), which invests in micro, small, and mid-capitalization stocks valued up to $5 billion. The fund’s investment objective is long-term growth of capital and current income. The fund has returned 7.9% since inception in 2004 and 25.85% over the past year. It consists of 256 holdings, with 33% of net assets invested in financial stocks. The fund has an annual operating expense of 1.5%.

Chuck Royce

The Royce Dividend Value Fund pays a dividend yield of 0.7%. Many of the fund’s constituent stocks pay higher dividend yields. Here is a closer look at five selected value stocks with solid balance sheets and earnings power that have dividend yields at or above 2%, yielding in excess of the 10-year Treasuries. These stocks would represent good additions to value-oriented income portfolios.

Owens & Minor Inc. (NYSE:OMI) is a $1.8-billion distributor of medical supplies and a provider of third-party logistics and other supply-chain management services to healthcare companies and suppliers of medical and surgical products. The company pays a dividend yield of 3.1% on a payout ratio of 51%. Its rivals Baxter International (NYSE:BAX), Cardinal Health (NYSE:CAH), and McKesson Corporation (NYSE:MCK) pay dividend yields of 2.7%, 2.6%, and 0.8%, respectively. Over the past five years, Owens & Minor Inc.’s EPS and dividends grew at average rates of 15.3% and 14.2% per year, respectively. Analysts forecast that the company’s EPS growth will average 7.8% per year for the next five years. The company recently issued weak guidance for 2013, below analyst expectations, with revenue growth of between 2% and 4% and EPS of between $1.90 and $2.0, below $2.07 forecast by analysts. The stock has a high free cash flow yield of 2.1% and ROE of 11.5%. The stock is attractive on valuation. Its forward P/E is at 14.5x, below its respective industry’s ratio of 16.8x. On a price-to-book basis, with the ratio of 1.8, the stock is undervalued relative to its respective industry (with the ratio of 2.8). Contrarian value investor David Dreman is also bullish about this stock.

Mine Safety Appliances Co. (NYSE:MSA) is a $1.4-billion provider of products that enhance the safety and health of workers in a number of industries. Some of its notable products include respiratory protective equipment, gas detection instruments, ballistic protection as well as head, eye, face, and hearing protection products. The company that has raised dividends consistently since 1972 pays a dividend yield of 2.8% on a payout ratio of 48%. MSA’s smaller competitor Lakeland Industries Inc. (NYSE:LAKE) does not pay any dividends, while peers Honeywell International (NYSE:HON) and 3M Company (NYSE:MMM) pay lower dividend yields of 2.7% and 2.5%, respectively. Over the past five years, MSA’s EPS grew, on average, by 1.6% per year, while dividends expanded at an annual rate of 10.4%. The company is forecast to see its EPS growth accelerate to an average rate of 9.0% per year for the next five years. The company’s free cash flow yield is 4.3% and ROE is 18.4%. In terms of valuation, the stock has a forward P/E of 15.6x, trading below its five-year average ratio. The stock is also undervalued relative to industry based on price-to-sales and price-to-cash flow ratios. Earlier this month, MSA issued a special dividend of $0.28 per share (equal to a 0.72% yield) due to the scheduled dividend tax hike next year. The one-time dividend will be paid on December 28 to shareholders of record on December 14. RenTech’s billionaire Jim Simons holds a small stake in the stock.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!