When I started my column yesterday, I intended to discuss several potential bargain dividend growth issues, but after talking about Stage Stores (SSI), I simply ran out of space. The last two times my secret retail research department (consisting of my wife and daughters) liked an out-of-favor cheap retail stock was with Skechers (SKX) and Build-a-Bear (BBW) back in 2011 or so. To say that those have worked out well would be a gross understatement.
Although the Stage stock is wildly out of favor, I think the new plan to close less-profitable stores makes a lot of sense. Stage has a strong balance sheet and just raised the dividend for the sixth year in a row, so I got a little carried away. (Stage Stores is part of TheStreet's Dividend Stock Advisor portfolio.)
Today, I want to look at some of the other dividend growth stocks reading for book value or less that might make sense for patient investors. When I run the screen, there are a lot of energy stocks on the list, but I am not sure most of those can keep paying, much less raise the dividend for the next few years. Since we are looking for reasonably safe dividend growth stocks for income-oriented investors, I think it will be best to dodge the energy names for now.
I like Aircastle (AYR) now. This company acquires, leases, manages and sells commercial jet aircraft. It also has a business segment that invests in debt securities that are backed by aviation assets. As of June 30, Aircastle's aircraft portfolio consisted of 161 aircraft on lease with 52 customers in 32 countries. I like the aircraft leasing business and have done very well with these companies over the years. The stock is trading at 95% of book value and the shares yield 4.16%. Aircastle has grown the dividend payout by an average of 17% annually for the past five years, and I expect to see it continue to grow the payout at a high rate over the next several years. Insiders apparently think the company's prospects are bright as they have recently been buying shares of the company.
California First National Bancorp (CFNB) takes deposits over the phone and Internet, but it's really more of a leasing company in disguise. It leases and finances things like computer systems, manufacturing equipment, printing presses, robotic surgical systems, medical imaging devices and mining equipment. It also leases school buses and furniture for offices and college dorms. It's a good business and the banking operations provide a good supply of cheap capital to finance the transactions. The stock trades at just 73% of book value, so it is certainly cheap now. California First National shares yield 3.18% and have increased the dividend by an average of 9% annually for the past five years.
Two giant insurance companies make the list. Although low interest rates are making the life insurance business a lot tougher than years past, Prudential Financial (PRU) is still doing fairly well. The company is also involved in the investment, retirement planning and group insurance businesses and they are all doing fairly well. Earnings have been improving and the company has grown the dividend by 22% on average the past five years. The stock is yielding 3.065% and at 82% of book value it is also cheap enough to consider it a bargain issue.
MetLife (MET) makes the grade as a dividend growth candidate as well. The insurance giant offers similar product lines as Prudential but also sells property and casualty insurance on both an individual and voluntary group basis. The company is trading at 88% of book value so it makes the grade as a cheap stock. The shares yield 3.1% and the payout has been an increased by an average of 12% a year for the past five years. In addition to the dividend, MetLife hiked its buyback authorization to $1 billion yesterday.
Income investors will continue to be challenged. I don't know when the Fed will start raising rates, but I am pretty sure it will be years before rates get anywhere near the levels where traditional fixed-income products become useful for investors who need cash flow from their investment portfolio. Solid companies purchased at bargain prices that have decent yields and a strong history of raising the payout should help income investors find the cash they need from their investments. There are not many that qualify as cheap right now, but this handful should provide a solid start on building a decent growth and income portfolio in a difficult market.
