Many dividend stocks fell out of favor over the past year as rising interest rates turned bonds into more attractive income investments. Yet there are still plenty of high-yielding stocks that are currently trading at discount valuations. Today, three of our Motley Fool investors will share three stocks that fit the bill -- China Mobile (CHL), General Motors (GM -0.04%), and WestRock (WRK 0.81%).
Click here for the latest earnings call transcripts for General Motors and WestRock.
China's largest wireless carrier
Leo Sun (China Mobile): China Mobile is the largest wireless carrier in China. It served a whopping 927.5 million wireless customers in January, representing 4% growth from a year earlier. 77% of those subscribers were on 4G plans, up from 73% a year ago.
Image source: Getty Images.
China Mobile also owns a smaller wireline business, which grew its customer base 38% annually to 161.5 million in January. That newer business gives China Mobile more all-in-one bundling opportunities.
China Mobile, China Telecom, and China Unicom are all state-backed enterprises. The government tweaks competition between the three carriers, oversees cost-cutting strategies (like the sale of their towers to a joint venture), and clears the way for the expansion of their 5G networks.
Government-mandated reductions in wireless fees and the elimination of data-roaming charges weighed down China Mobile's earnings growth throughout most of 2018. As a result, it will likely generate low single-digit sales and earnings growth this year.
However, with most of that damage now behind it, investors can expect its revenue and earnings growth to gradually improve as users upgrade to 5G plans over the next few years. Moreover, the stock is cheap at 12 times trailing earnings, and its yield -- which is declared twice every year based on a percentage of its earnings -- generally fluctuates between 3% and 5%. Therefore, investors looking for a conservative income investment on China should take a closer look at China Mobile.
Watch this stock drive higher
Dan Caplinger (General Motors): General Motors has combined high dividend yields and cheap share prices for a long time now. The automaker boasts a quarterly dividend of $0.38 per share, which gives it a current yield of 3.8%. Yet the stock trades at only 7 times trailing earnings, and when you incorporate near-term expectations for modest bottom-line growth, GM's forward multiple comes in at just 6.
General Motors has seen mixed performance in its business recently. In 2018, revenue was up by just 1% from 2017 levels, and adjusted earnings per share were down 1%. Rising commodity costs had a negative impact on the company's profit, and weakness in the Chinese auto market and inflation-related currency pressures throughout much of South America weighed on GM's results. Yet pickup truck sales in North America were strong, and crossover sport-utility vehicle sales benefited from continued low gasoline prices.
Analysts have suggested that auto sales will suffer a cyclical downturn soon after years of growth, but expectations for General Motors in 2019 look similar to 2018 results on the bottom line. That implies little or no growth, but with such a low earnings multiple -- and plenty of earnings to support further dividend increases -- General Motors is an ideal high-yield stock for income investors to consider.
Wall Street loves to hate this paper business
Maxx Chatsko (WestRock): Either analysts in Manhattan have some top-secret information most investors don't, or Wall Street is simply wrong about WestRock. Shares of the paper leader have fallen nearly 40% in the last year on fears that the trade war between the United States and China would have a detrimental impact on the business. That simply never occurred.
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In fiscal 2018, the business delivered year-over-year double-digit growth in revenue, operating income, operating margin, adjusted EBITDA, operating cash flow, and a range of other important financial metrics. The business is on solid footing for the year and years ahead, too. WestRock closed its acquisition of KapStone in November 2018 (during its fiscal first-quarter 2019), which will significantly boost its corrugated packaging business. That's important.
WestRock generated 56% of revenue and 72% of operating income from its corrugated packaging segment in fiscal 2018. "Corrugated packaging" is the technical term for cardboard, which has been experiencing record demand and record pricing in recent years thanks to the rise of online shopping and a swelling global middle class. That includes insatiable demand from China, where manufacturing capacity of finished paper products is insufficient to meet domestic demand. Thus, China has to turn to the United States for imports. Wall Street's knee-jerk reaction to the trade war's effect on the American paper industry never panned out.
That makes the stock's 40% fall look like a screaming buying opportunity to me. WestRock converted 15% of revenue into operating cash flow in fiscal 2018. That's more than enough breathing room to cover its 4.6% dividend yield. Meanwhile, the stock trades at just 9 times future earnings, a PEG ratio of 0.62, and a price-to-book value of just 0.86. Once KapStone begins contributing in the year ahead, Wall Street will likely to be forced to properly value shares.
