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3 Buy-Rated Dividend Stocks Under $10

Barchart - Thu Dec 14, 2023

Historically steep interest rates and soaring 10-year Treasury yields set up some tough competition for dividend stocks this year, as investors seeking out high returns had plenty of options to consider. However, with inflation starting to cool, the Fed's dovish policy statement this week has provided support for stocks across the board - and 10-year yields have come back down to earth.

With dividend stocks on track to benefit from a more favorable macroeconomic backdrop in the year ahead, here are three appealing picks for yield hunters, all priced under $10 per share - and all with a seal of approval from Wall Street analysts.

Fat Brands

We start our list with Fat Brands (FAT), a leading global franchisor of fast casual and casual dining restaurant concepts, operating over 2,300 units worldwide under 18 brands - such as Johnny Rockets, Fazoli's, Fatburger, Buffalo's Cafe, and more. Founded just six years ago in 2017, the company currently commands a market cap of $90.6 million.

Fat Brands shares are up 31% on a YTD basis. It offers a quarterly dividend of $0.14, which results in a dividend yield over 9%.

Fat Brands has yet to be consistently profitable, but revenues for the most recent quarter came in at a stronger-than-forecast $109.4 million, up 6% year over year. The company ended the quarter with a cash balance of $88 billion, close to double the current portion of the long-term debt at $45.2 million.

Meanwhile, Fat Brands is making strategic moves, including the acquisition of Smokey Bones for about $30 million - which is expected to add to operating profit by about $10 million. Fat Brands also has over 1,100 signed agreements for new units in place. which is expected to boost EBITDA by about $60 million, and could take its brand Twin Peaks public in 2024, which could add significant value for shareholders.

With just two analysts in coverage, Fat Brands stock has garnered a unanimous “Strong Buy” rating, with a mean target price of $20. This denotes expected upside potential of about 300% from current levels.

Vodafone Group

Next up on our list is the global telecommunications company Vodafone Group (VOD). Founded in 1991, Vodafone provides mobile and fixed-line telephony, broadband internet, television, and other related services. They operate across Europe, Africa, Asia, and the Middle East, with over 300 million mobile customers. The company currently commands a market cap of about $22.6 billion.

Vodafone stock is down 7.3% on a YTD basis to trade around $8.50, pushing its dividend yield north of 11%.

In its results for Q2 FY24, Vodafone reported a revenue decline of 4% from the previous year to 11.2 billion euros, primarily due to the removal of Vantage Towers revenue. Digging deeper, UK average revenue per user (ARPU) rose by 6.2% from the previous year, while German ARPU ticked up 1.7%. Further, Lifetime Value (LTV) also improved sequentially.

Notably, Vodafone also recently burnished its AI credentials by forging a partnership with leading networking company Juniper (JNPR). Vodafone Business launched an SD-LAN service powered by Juniper's Mist AI technology. This service enables dynamic network adjustments based on user experience and network traffic, optimizing performance and user satisfaction.

On the basis of valuation, VOD trades at a forward price/sales of 0.47 and p/e of 7.37, both of which represent a discount to the respective sector medians for telecom stocks.

Overall, analysts have a “Moderate Buy” rating for the stock, with a mean target price of $14.43 - indicating an upside potential of roughly 70% from current levels. Out of 8 analysts covering the stock, 2 have a “Strong Buy” rating and 6 have a “Hold” rating.

Kinross Gold

We conclude our list with Kinross Gold (KGC), a Toronto-based gold miner with operations in the U.S., Russia, Ghana, and Brazil, and a number of exploration projects underway in other countries, with an annual output of 2 million ounces. The company's stock offers a dividend yield of 2.00%, with a modest payout ratio of 28%.

KGC commands a market cap of $7.35 billion, and the stock is up 53% YTD.

For its latest results in Q3 2023, Kinross said revenues increased by 29% from the previous year to $1.1 billion, aided by an 11% yearly rise in production. EPS of $0.12 was up 146% year over year, and surpassed the consensus estimate. In fact, the company's EPS has topped expectations in four out of the past five quarters. Kinross also has $2 billion of available liquidity. 

Along with tracking new highs in gold prices, KGC is expanding its footprint with new and expanding projects. Phase S at Round Mountain will extend its life and deliver an additional 750,000 ounces of gold, increasing average annual production by 50% from 2024 to 2028. Elsewhere, the company's flagship Tasiast Mine in Mauritania will see its 34MW solar plant come online in Q4, significantly reducing reliance on external power.

Also, apart from its flagship mines in Chile and Brazil, Kinross is betting on two other noteworthy projects - the Great Bear Project in Red Lake, Canada, and the Manh Choh Project in Alaska. The Great Bear project is expected to commence gold production in 2029 and has an initial indicated resource of 2.7 million ounces and an inferred resource of 2.3 million ounces, with plans to to reach an annual production of 5 million ounces. Meanwhile, the Manh Choh Project is on track to begin production in the second half of 2024.

Analysts have a “Moderate Buy” rating on KGC with a mean target price of $6.27, just fractionally higher than current levels - though the Street-high target is a 16% premium from here. Out of 13 analysts covering the stock, 6 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 5 have a “Hold” rating, and 1 has a “Moderate Sell” rating.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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