Stock Analysis & Ideas

2 “Strong Buy” Dividend Stocks Under $5 With up to 7% Yield and Substantial Upside

Every investor wants to see his stocks pay off – or he wouldn’t be in the markets. But finding the right investment, the ‘one’ that will bring profits, no matter what direction the overall markets take, can sometimes be challenging.

The two simplest courses of action an investor can take to ensure solid returns are based on common sense. The first is, to buy low and sell high. That is, find a cheap stock with sound fundamentals and good prospects for growth – and buy in to take advantage of the growth potential. The second common sense move is to buy stocks that will pay you back. That is, buy into dividend stocks.

Today we’re going to look at two stocks that offer investors the best from both of those routes toward market success. According to TipRanks’ database, these are Strong Buys, with a dividend yield up to 7% and substantial upside potential. And all that for a cost of entry below $5.

National CineMedia (NCMI)

The first stock we’ll look at lives in a fascinating niche, one that most of us almost certainly never think about. National CineMedia is in the advertising business, creating, producing, and distributing ads that run before the movies in the theater start. The company benefits from having something of a captive audience, one already cued to watch what’s on the screen.

Unsurprisingly, NCMI shares plummeted back in February of 2020, when the corona pandemic forced closures of the movie theater chains. And equally unsurprisingly, the stock has not regained its pre-corona price levels.

In the most recent quarter reported, for 3Q21, NCMI showed $31.7 million at the top line. While well short of pre-pandemic levels (which regularly exceeded $100 million), and while it missed the Street’s estimates by approximately 25%, it was still up a whopping 428% year-over-year. Also, it was the second quarter in a row of increasing revenues, and even after a year or more of pandemic-related headwinds, NCMI still has $64.4 million in cash assets available.

Those cash assets are helping to fund the company’s dividend, which it has been careful to continue to paying out during the corona crisis. While National CineMedia has been forced to lower the payment, it has been able to maintain the dividend for the past two years without missing a quarterly payment. The most recent dividend, paid in December, was set at 5 cents per common share, or 20 cents annualized, which gives a yield of 7.3%. This compares favorably to the average yield found among peer stocks, which is currently about 2%.

In coverage of this stock for B. Riley Securities, 5-star analyst Eric Wold writes: “We remain positive on the opportunity for the ‘lights down’ strategy to differentiate NCMI’s offering vs. the emerging AVOD networks—given that NCMI’s platform can offer a larger and more captive audience of key demographics. While we are modeling NCMI’s advertising revenues throughout 2022/2023 to, more or less, mirror box office and attendance patterns, we would expect to see some positive separation in the coming quarters as NCMI benefits from stronger inventory utilization and higher CPMs…”

Wold also turns to the company’s liquidity situation, adding, “Not only did NCMI have enough liquidity to push through year-end and into January (with LLC cash + additional revolver capacity + the Inc. loan), the company will start to benefit from incoming cash flow on the stronger 4Q21 seasonality and monetization of the upfront advertising commitments.”

Based on these comments, Wold gives NCMI stock a Buy rating, and his $6 price target suggests it has ~119% room to run this year. (To watch Wold’s track record, click here)

Wall Street seems to share Wold’s view here, as the stock has 4 positive reviews to back its Strong Buy consensus rating. The shares are priced at $2.74 and have an average price target of $5.38, suggesting ~96% gains for 2022. (See NMCI stock forecast on TipRanks)

loanDepot, Inc. (LDI)

Next up is loanDepot, an originate-to-sell lending platform focused on residential mortgage products, with a multi-channel go-to-market strategy that uses both a direct branded presence as well as varied partnerships.

loanDepot is relatively new to the public markets, as it only held its IPO in February of last year. The company, however, has been buffeted by problems since its IPO. First, the company operates in a highly competitive niche, nonbank retail mortgage lending; second, loanDepot has been forced to face several lawsuits in the last few months, involving allegations of business fraud and employee discrimination. All of this has put heavy headwinds in the way of the company.

The company has strengths, however, allowing it to meet the challenges. To start with, the company’s most recent fiscal report, for 3Q21, showed the ninth quarter in a row of year-over-year market share growth, as its share grew 46% to 3.5%. Furthermore, the company reported $923.8 million at the top line. While this was down from $1.36 billion in the year-ago quarter, it was up a solid 18% from Q2. EPS did even better, growing from 7 cents in Q2 to 40 cents in Q3. loanDepot reported having $506 million in cash at the end of Q3, a value that has grown steadily since the end of December 2020.

The revenues and earnings, and the solid cash holding, all combined to give the company confidence to keep up the dividend. LDI’s most recent declaration was 8 cents per share, its third in a row at that level. With an annualized payment of 32 cents per common share, the company gives a dividend yield of 6.5%.

Kevin Barker, 5-star analyst from Piper Sandler, takes a bullish stand on LDI, writing: “In our view, LDI appears better positioned to weather the current rate cycle, which should allow the company to remain reasonably profitable despite heavy competition. This should lead to downside protection via incremental book value growth while an unexpected turn in the market (i.e. rates move lower) could lead to a significant jump higher in the stock.”

Barker takes this upbeat stance despite the pending lawsuits. He does not avoid that headwind, but he does not see it as decisive at this time. Barker writes of the suits, “We cannot ignore these allegations and we do not know if they have merit. However, we believe the potential outcome of this lawsuit and a potential regulatory action would have a limited impact.”

Overall, LDI gets an Overweight (i.e. Buy) rating from Barker, and an $8 price target that implies an upside of 63% in the next 12 months. (To watch Barker’s track record, click here)

Wall Street appears to be in broad agreement with Barker, as LDI shares maintain a Strong Buy rating from the analyst consensus. There have been 8 recent reviews, including 6 Buys and 2 Holds. Meanwhile, the stock’s $10.19 average price target implies ~108% upside potential from the $4.90 trading price. (See LDI stock forecast on TipRanks)

To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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