Friday’s TSX breakouts: This 4% dividend stock may be close to a bottom

The markets are finally stabilizing – at least for now. Consequently, there are just two stocks on the positive breakouts list, one of which, Capstone Infrastructure, is being bought by Icon Infrastructure at $4.90 a share. Meanwhile, the negative breakout list is down to sharply to just 29 stocks.

One stock on the negative breakout list stands out – DH Corporation (DH-T). This dividend paying technology stock was hammered in the fourth-quarter with the release of a negative report from Lawton Park Capital Management, and the stock price has yet to recover. The stock plunged 19 per cent in the fourth-quarter. However, the 4 per cent yield combined with an inexpensive valuation may provide downside support from current levels. The stock may soon find a bottom. A brief overview is provided below that may serve as a springboard for further research.

Toronto-based DH is a financial-technology provider. The company's software and technology provides lending, payments, enterprise and global transaction banking services to nearly 8,000 financial institutions.

Dividend policy

The company pays shareholders a quarterly dividend of 32 cents per share, or $1.28 per year, equating to an annualized yield of 4.2 per cent. The dividend has been maintained at this level since late 2012.

Valuation

On a price-to-earnings (p/e) basis, the stock is trading at a multiple of 12.2 times the 2016 consensus earnings estimate, well below its one-year historical average p/e multiple of 16 times, and also at a steep discount to its three-year and five-year historical average p/e multiples of 14.4 times and 13.1 times, respectively.

Analysts' recommendations

According to Bloomberg, there are eight analysts with buy recommendations with an average one-year price target at $44.88, implying the stock price may appreciate 49 per cent over the next year. Price targets range from a low of $38 to a high of $50. Individual price targets are as follows: $38, $40, $42, $44, $47, $48, and two are at $50.

Earnings are forecast to grow modestly over the next year. The consensus earnings per share estimate is $2.34 in 2015, and forecast to rise 6 per cent to $2.48 in 2016.

Chart Watch

The chart is weak with the stock price in a sharp downtrend.

In late 2015, the stock price broke down, with the 50-day moving average crossing below the 200-day moving average. On Thursday, the stock price closed at its lowest level since the first quarter of 2014.

However, much of the downside may have been realized. Year-to-date, the stock price is down 4.6 per cent, outperforming the S&P/TSX composite index, as well as the information technology sector, which is down 8.4 per cent year-to-date.

The stock is approaching strong downside support near $30. The stock has initial upside resistance around $32, near its 50-day moving average of $32.14.

The relative strength index is at 37, suggesting it has not reached an oversold condition. Generally, a reading at or below 30 indicated an oversold condition.

As always, I strongly encourage readers to consult a financial adviser, and to do their own proper due diligence before taking any investment action.

Below is a list of stocks in the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.