Cheap Dividend Stocks

Barron's feature article this week is on the top 1,000 investment advisors in the U.S. I thought the most interesting line in the report was in the subtitle: "Their single biggest recommendation: Buy dividend stocks."

My Foolish colleague Morgan Housel recently made a convincing case that valuations in the dividend-stock universe are getting rich as investors reach for yield. Dividend stocks are popular here at the Fool and I'm both a fan and a cheerleader. But it's concerning as a contrarian for me to see any investing approach getting popular.

With dividend-stock prices bid up, are there still good bargains out there? A screen should help answer that question. I wanted to find out if there are still stocks trading at a discount to the market, but with above-market dividend yields and solid balance sheets. To get the answer, CAPS screener was run with the following parameters:

• Price-to-Earnings ratio positive and under 15
• Dividend yield above 2.5%
• Long term debt-to-equity ratio less than 1.0
• Revenue and earnings growth rate both over 5% for the last three years
• Market capitalization greater than $250 million
• CAPS rating of four or five stars (out of five)

The screen kicked out 33 stocks covering a variety of sectors, including these five:

Source: CAPS Screener results. S&P 500 valuation from Barron's Market Lab.

Statoil is a Norwegian oil and gas exploration and production company. Analysts expect about a 7.5% long-term growth rate. I normally like to do a little more research before making a CAPScall, but Statoil's cheap, pays a nice annual dividend, and recently bumped up production, so it gets a green thumbs-up on my scorecard.

Tape, adhesives, filters and a plethora of other products summarize 3M's business. Analysts put their long-term earnings growth at 10%.

Cue the duck. Aflac represents financials on the list and, as you probably know, is in the insurance business. Above market yield, discount valuation and analyst expectations for 10% growth should put it on dividend investors' "dig deeper" list. Like with Statoil, I'm making an outperform CAPScall on Aflac.

Steady performance, stable business, and a reliable dividend earn drug-store chain Walgreens a place on the list. Walgreens also joins 3M and Aflac on S&P's Dividend Achievers -- an exclusive list of companies with at least a 25-year history of annual dividend hikes.

Cheap valuation, nice dividend, and double-digit growth expectations are the core reasons I own shares and have a long-standing CAPScall on Intel. The company is late to the mobile-device market, but the PC business isn't quite dead yet and Intel has the resources to compute a catch-up path.

The screen shows there are still some decent values among dividend-payers in the market. They just aren't as good a deal as they were six months ago. As always, screen results should be used as a starting point for further research, not as outright buy recommendations.

What's your call? Have dividend stocks gotten too expensive? What's your favorite? Weigh in with a comment below.

• Add Walgreens to My Watchlist.
• Add Statoil A to My Watchlist.
• Add 3M to My Watchlist.
• Add Intel to My Watchlist.
• Add AFLAC to My Watchlist.