In an inflationary environment where purchasing power is eroded with each passing day, dividend-paying stocks look ever more attractive. And while some income-oriented investors flock to well-known names for good reason, other stocks often fall under the radar yet offer ultra high yield dividends.
We set out to identify stocks with high returns on invested capital that had significant upside potential and offered high yields too. Here are 3 stocks that passed the test:
- Civitas Resources has a return on invested capital of 26.9% and an upside potential of 65.9%. It pays out a double-digit dividend yield of 11.8%.
- Woodside Energy Group has a P/E ratio of 6.2x, strong cash flows, and an attractive return on invested capital of 17.7%.
- Pioneer Natural Resources has massive levered free cash flows, an undervaluation of 45.7%, and an intrinsic price per share sitting at $265.
Civitas Resources Pays 11.8% Dividend
Civitas is involved in the exploration and production of natural gas in the Rocky Mountain region. It’s the type of stock that could whet the appetite of an income-oriented investor for many reasons.
First off, it has a very strong cash flow yield, and large cash flows that can sufficiently cover interest payments. Growth and relative value are attractive too. The company grew its top line by 307% last year and has had only one year of declining revenues over the past fiver year (in 2020).
Crunching the numbers reveals a really attractive play. The company’s return on invested capital sits at 26.9% and its upside to fair value suggests as much as 65.9% gain potential to $102 per share. While waiting for fair value to be realized, the company pays out a double-digit percentage dividend yield of 11.8%.
Woodside Energy Group Pays 13.7% Dividend
Woodside is also an energy company, and engages in the exploration and production of hydrocarbons in Africa, Asia, and the Americas, as well as Oceania.
Like Civitas, it had a banner 2022 with revenues spiking higher by 141.6% and it also had a poor 2020 when revenues fell by 26%. Other than that blip, the financials look good.
The company has a P/E ratio of 6.2x and appears to have sufficient cash flows to cover debt payments too. Levered free cash flow in 2022 soared to $5.6 billion from $1.1 billion in 2021 and -96 million in 2020.
Woodside also has an attractive return on invested capital, which sits at 17.7% but where it really shines is its dividend yield that is an astonishing 13.7%. We also see fair value 41% higher at $29 per share.
Pioneer Natural Resources Pays 15.1% Dividend
Pioneer Natural Resources is an oil and gas exploration and production company that explores for, develops, and produces oil, natural gas liquids (NGLs), and gas.
It has had some extraordinary revenue growth spurts over the past five years:
- 2018: 77.3%
- 2019: 3.1%
- 2020: -27.4%
- 2021: 154.4%
- 2022: 36.5%
The revenue surges over the past couple of years have resulted in massive levered free cash flows that have grown from $481 million in 2020 to $2.89 billion in 2021 and $7.4 billion last year.
Despite all the good news, the company appears undervalued to the tune of 45.7% by our analysis with intrinsic price per share sitting at $265 per share.
We also see a 26% return on invested capital and an eye-popping 15.1% dividend.
$500 Quarterly Dividend
The blended average of the dividends of these three stocks is 13.5% annually so if you wanted to earn $500 quarterly by investing an equal amount into each stock, you would need to invest a total of $14,814. Or for easy math $5,000 in each of the 3 stocks should produce about $2,000 annually or $500 quarterly.