Dividend-paying stocks of companies that find themselves in an “oversold” condition can oftentimes represent above-average investment opportunities for savvy traders.
That’s because — provided the dividend in question is secure, meaning that it’s solidly backed by strong underlying cash flows and a recurring earnings stream — the yield on a company’s dividend should essentially act as a “floor” supporting its share price.
Regardless of what the market may be thinking regarding the outlook for a given company, a dividend income stream is a very real thing. If the price — or yield — on a security ever deviates too far out of reach from what would be considered a reasonable norm, you can bet that some big investor out there is going to step in to snap it up.
High Liner Foods (TSX:HLF) doesn’t run a glamourous business by any stretch of the imagination, but world-famous investor and billionaire Warren Buffett has espoused time and again how much he prefers to invest in “boring” businesses.
You can find HLF’s lineup of processed seafood products in the frozen food aisles of supermarkets across North America under the brands of High Liner, Fisher Boy, and Sea Cuisine.
Despite being around since 1899, the company now is in the midst of an organizational restructuring, as it works to defend itself against stagnating sales coupled with declining margins.
But that doesn’t make it a bad investment by any stretch of the imagination.
In fact, HLF has averaged annual free cash flows of greater than $30 million in each of the past four years, considerably more than what’s required to sustain its current dividend payments, which presently yield 2.32% annually.
Transcontinental (TSX:TCL.A) is Canada’s largest printing company, and following its transformational acquisition of Coveris Americas last year, it’s starting to become a formidable player in the North American flexible packaging segment.
Shares in TCL currently yield 5.99% annually, as the company’s yield has risen commensurately with the decline in the value of its stock from an all-time high in 2018 that at one point touched above $30 per share to where it currently trades near its 52-week lows of $14.04.
While I like the move to shift resources away from print media and towards flexible packaging as part of the Coveris acquisition, the fact remains that it wasn’t a cheap decision on the part of company management.
TCL added more than $850 million in debt to its balance sheet between 2017 and 2018, and whether you agree with the decision or not, it’s a change that the market has had a difficult time dealing with.
Still, this is a company that has regularly managed to generate in excess of $200 million in annual free cash flows, substantially more than what’s needed to fund the current dividend.
Cineplex (TSX:CGX) is more of a household name than the aforementioned companies.
Cineplex is Canada’s largest movie theatre chain, operating more than 160 theatres and more than 1,650 screens under the Cineplex Odeon, SilverCity, Galaxy Cinemas, and Famous Players brands.
Unfortunately for shareholders, the last couple of years haven’t exactly been great for movie exhibition companies, and CGX is no exception.
The company’s stock price has lost close to half its value since 2017, including a -6.8% loss since the start of 2019.
Theatre chains have continued to struggle to attract moviegoers to their theatres, despite investing in various initiatives that they had hoped would attract patrons and particularly the millennial demographic.
In a development that certainly won’t stir up any additional confidence in the sector, America’s largest movie exhibitor AMC Entertainment has faced declines of its own this week, down by double-digits percentages through Thursday’s trading activity.
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Fool contributor Jason Phillips has no position in any of the stocks mentioned.