Dividend Stocks

7 Stocks That Look Too Cheap Given Their High Cash Flow and Dividends

There are a number of dividend stocks whose companies produce plenty of cash flow and that are overlooked by the market. In many cases, these companies have high dividend yields. But their key characteristic is their cash flow more than covers the dividends being paid to shareholders.

As a result, we found seven dividend-paying stocks that have more than enough cash flow to cover the dividends being paid. These stocks are cheap from a number of value measures, including their price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) ratios.

Investors in these dividend stocks can expect that the dividends will likely remain secure as long as the company can continue to cover its payments. As a bonus, some of these seven stocks also are buying back shares.

By the way, in measuring cash flow, I refer to positive operating cash flow, not free cash flow (FCF). In addition, it’s possible the company may issue some debt to supplement its finances for their dividends.

Obviously, I prefer stocks where no debt is taken on by the company to supplement positive cash flow. However, all of these stocks are on the NYSE, so their financials are solid enough to raise any debt.

Here is the list of the seven dividend stocks whose cash flow is available to cover their dividends:

  • Camping World (NYSE:CWH)
  • Conagra Brands (NYSE:CAG)
  • AT&T (NYSE:T)
  • Exxon Mobil (NYSE:XOM)
  • 3M (NYSE:MMM)
  • Domino’s Pizza (NYSE:DPZ)
  • Texas Pacific Land (NYSE:TPL)

Let’s dive in and look at these stocks.

High Cash Flow Dividend Stocks: Camping World (CWH)

Source: IgorGolovniov / Shutterstock.com

Market Capitalization: $2.6 billion

Dividend Yield: 7.87%

Camping World is America’s largest retailer of recreational vehicles (RVs) and outdoor items. It is very profitable and generates huge amounts of cash flow. For example, on Feb. 22 Camping World announced that in 2021 it had revenue of $6.9 billion, up 26.9% year-over-year (YoY).

As a result, the company raised its quarterly dividend by 25% to 62.5 cents, up from 50 cents. This puts its annual dividend per share (DPS) at $2.50 per share. This gives CWH stock, presently trading as of March 1 at $31.75, with a dividend yield of 7.87%.

This is important since the company can more than afford to pay the dividend. According to its press release, Camping World produced $131.5 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Since there are 88.5 million shares outstanding on a fully diluted basis (as if all options are converted) the maximum dividend payment would be just $55.35 million. So this means that the company can clearly afford the dividend. Moreover, in 2021, Camping World produced $154 million in cash flow but its dividends paid out cost only $38.1 million. Even with its high capital expenditure (capex) costs, which are controllable, of $118.7 million, its dividend payments are still affordable.

According to Seeking Alpha’s estimates from analysts, the average forward P/E for 2022 is just 5.15 times. This low P/E along with its high dividend yield shows that investors are rating CWH stock too cheaply.

Conagra Brands (CAG)

Source: Jonathan Weiss / Shutterstock.com

Market Cap: $17.0 billion

Dividend Yield: 3.61%

Conagra Brands is a large consumer packaged goods food company, with brands like Birds Eye, Duncan Hines, Healthy Choice, Marie Callender’s, Reddi-Wip, and Slim Jim. CAG stock is cheap, trading on a forward P/E of just 14.1 times, according to Seeking Alpha, with earnings per share (EPS) of $2.45 forecast for 2022. This is more than enough to cover the annual $1.25 dividend.

As a result, CAG stock now has a dividend yield of 3.61% at its price today (March 1) of $34.60 per share. Moreover, the company can clearly afford both the dividend and its huge share repurchase program.

For example, in the last 12 months to Nov. 30, 2021, Conagra has an operating cash flow of $1,188.8 million, which was enough for these payments. Capex cost $481.9 million, and dividends were $549.3 million, or a total of just 1,031.9 million. This meant there was money left over for share repurchases.

Look for Conagra stock to continue to do well over the coming year as investors warm up to this giant cash flow-producing food company.

High Cash Flow Dividend Stocks: AT&T (T)

Source: Lester Balajadia / Shutterstock.com

Market Cap: $170.8 billion

Dividend Yield (pro forma): 6.53%

I recently wrote an article explaining how AT&T now has a pro forma dividend yield of 6.4%, despite the company’s upcoming proposed dividend cut. It will reduce the dividend to $1.11 from $2.08, but it will also spin-off WarnerMedia into a new company called Warner Bros. Discovery (WBD). This will occur sometime in early Q2, according to Discovery’s CEO.

As a result of the spin-off, I estimate that AT&T stock could fall by $6.59 per share (see my prior article). So at today’s price of $23.60, the pro forma post-spin-off price will be $17.01 (i.e., $23.60 – $6.59). So, if we divide $1.11 by $17.01 (the pro forma post-spin-off price of AT&T), the new dividend yield will be 6.53% ($1.11 / $17.01).

The company is reducing its dividend per share as it believes this will allow it to sustain that dividend after the spinoff of WarnerMedia. Investors should also consider this: they will receive 0.24 shares in WBD) for every share in AT&T they receive. This is according to the Feb. 1 announcement by AT&T.

There is no indication yet whether that company will pay a dividend. But it is theoretically possible down the road. That could also make up for the cut in dividend payments that AT&T is going to make from $2.08 annually to $1.11.

As a result, investors should consider that AT&T stock looks very attractive. Investors will get a high yield now and also receive shares in a profitable company in the spin-off. In fact, even if the spin-off shares fall, it is likely that AT&T stock will rise, given its high yield. Investors should probably not sell their WBD shares when they receive them in their brokerage account. Over time they could become quite valuable.

Exxon Mobil (XOM)

Source: Harry Green / Shutterstock.com

Market Cap: $329.5 billion

Dividend Yield: 4.46%

Exxon pays a very comfortable 88 cents per share quarterly dividend or $3.52 per year. At today’s price of $78.87 (March 1), this gives XOM stock an attractive dividend yield of 4.46%.

Moreover, this is more than affordable by the oil giant since its earnings in 2021 alone (before the recent oil price rise) was $5.38 per share, well over the dividend payment.

In addition, analysts estimate that in 2022, EPS will rise to $6.76, putting the stock on a good P/E of just 11.7 times on a forward basis. That could easily allow the company to continue to pay this huge dividend.

On top of this, as I recently wrote about, Exxon has initiated a new $10 billion share buyback program. Therefore, the high yield, low P/E and share buyback program all make XOM a very desirable dividend stock.

High Cash Flow Dividend Stocks: 3M (MMM)

Source: JPstock / Shutterstock.com

Market Cap: $86 billion

Dividend Yield: 4.11%

3M, the multi-brand conglomerate, recently raised its quarterly dividend by 0.7% to $1.49. This puts its annual DPS at $5.96, and at today’s price (March 1) of $144.86, its dividend yield is 4.11%.

This is more than affordable by 3M since its forecast earnings from Refinitiv’s analyst survey (published by Yahoo Finance) is $10.41 for 2022. That is well over the $5.96 DPS payment, giving investors a good deal of comfort that 3M stock’s high dividend yield is sustainable.

This is also borne out by the company’s ample cash flow. Last year it produced $7.45 billion in operating cash flow but its capex spend was just $1.6 billion and the cost of the dividend was just $3.42 billion. This left plenty of money for the company’s share repurchase program as well. This makes 3M stock one of the most secure dividend stocks out there.

Domino’s Pizza (DPZ)

Source: Ken Wolter / Shutterstock.com

Market Cap: $15.65 billion

Dividend Yield: 1.01%

On March 1, Domino’s Pizza announced that it raised its quarterly dividend by 17% to $1.10, or $4.40 annually. So, at today’s price of $434.99, the new yield is 1.01%. Moreover, this is more than affordable by the company as it made a diluted EPS of $13.60 in 2021.

Moreover, as the company has diluted shares outstanding of 36.67 million, its dividend will cost $161.3 million. By contrast, the company’s announcement on March 1, indicated on page four that its free cash flow was higher than this at $560 million. In other words, the dividend is at least three times covered by free cash flow.

On top of this, Domino’s has an extremely strong share repurchase program. In 2021 alone it bought back $1.32 billion of shares, and it has $704.1 million left in its share buyback program.

For these reasons, DPZ stock looks like one of the most attractive dividend stocks on our list.

Dividend Stocks: Texas Pacific Land (TPL)

Source: bht2000 / Shutterstock.com

Market Cap: $8.26 billion

Dividend Yield: 1.0%

On Feb. 11, Texas Pacific Land, a major oil and gas royalty company, raised its quarterly dividend to $3.00, or $12.00 annually. Therefore, at today’s price (March 1) of $1,204.10, its annual yield is very ample at about 1.0%.

This is a direct result of the high price of oil and the huge increases in oil and gas royalty revenue that the company is experiencing. So this is a play on oil and gas as one of the dividend stocks on our list.

Remember that royalty companies do not have to pay for exploration costs, as it simply collects revenue off of the top of the revenue pyramid emanating from oil and gas wells it owns. This makes it a simple and clear play on higher oil and gas prices and dividends that the company can more than afford.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.