3 Bargain Bin High-Yield Dividend Stocks You've Overlooked This Fall

By Markets Fool.com


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Regardless of how well or poorly the stock market is performing, one thing is for certain: Dividend stocks are always in style.

I've often said that dividend stocks are the foundation of a great retirement portfolio -- and for good reason. For starters, companies that pay dividends usually have a long history of profitability and a sound long-term outlook. A business that doesn't have a clear path to growth typically isn't going to pay a dividend. In other words, buying dividend stocks often means buying into high-quality, profitable companies with long histories of success.

Secondly, dividend stocks can help hedge the stock market's inevitable moves lower. Since 1950, based on data from Yardeni Research, theS&P 500has corrected lower by at least 10% (when rounded to the nearest digit) on 35 occasions. Owning dividend stocks is a great way to help hedge against these market swoons. As an added bonus, since dividend stocks tend to attract long-term investors, they can sometimes also be far less volatile during corrections.

Lastly, dividend stocks give you the ability to take advantage of compounding over time by reinvesting your payout back into more shares. Doing so allows your ownership in a business to grow, as well as your corresponding payout. Compounding is a tactic some of the smartest money managers use to increase the value of their funds over time.

But some of the best dividend stocks can be found floating well below investors' radars. Here are three bargain bin high-yield dividend stocks you've probably been overlooking this fall.

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GlaxoSmithKline PLC

For high-yield investors looking for an anchor-type stock to add to their portfolio this fall, I'd suggest digging deeper into U.K. drug giant GlaxoSmithKline (NYSE: GSK). Shares of GlaxoSmithKline have slumped nearly 11% over the trailing three-month period.

The biggest hurdle for GlaxoSmithKline, which is commonly referred to as GSK, has been the decline in Advair sales. Advair, which has for a long time been GSK's flagship COPD and asthma drug, was once an $8 billion a year drug. However, it's lost its patent exclusivity and is likely a year or two away from facing generic competitors. As such, GSK has been forced to reduce its list price on Advair to keep it competitive in the meantime. By 2020, Advair's sales may dip to as little as $2 billion. Where GSK's growth will come from next has been a major source of debate.

The answer to this question comes in two forms. First, GlaxoSmithKline has benefited from innovation at ViiV Healthcare, where it's a majority owner. ViiV is the company responsible for next-generation HIV therapy Triumeq, as well as Tivicay. At their current torrid growth pace, both drugs could near $3 billion in annual sales in 2016.

A second source of growth for GSK has come from the launch of its numerous next-generation, long-lasting COPD and asthma inhaled medications. Following a brief period of instability where GSK struggled to get insurer coverage for Breo and Anoro Ellipta, both inhaled therapies are now humming along nicely and scooping up market share. In fact, new drug launches for GSK are now outpacing the loss in sales the company is dealing with from mature drugs losing exclusivity.

Another aspect of GSK's success has been its cost-cutting. GlaxoSmithKline remains on track to save nearly $3.7 billion annually on costs thanks to its efforts to restructure its pharmaceutical business, revamp its supply chain, and following its asset-swap with Novartis. This swap, which saw GSK sell its small-molecule oncology business and purchase Novartis' vaccine segment, allowed the two companies to form a consumer products joint venture that should save both a lot of money.

Sporting a 5.4% dividend yield and a healthy 23% operating margin over the trailing 12-month period, GlaxoSmithKline could be just what the doctor ordered.


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Corrections Corporation of America

Just as the name implies, Corrections Corporation of America (NYSE: CXW) owns and operates private correctional and detention facilities throughout the United States.

Shares of the private detention operators have been absolutely slammed since the end of June, losing about two-thirds of their value. The primary culprit behind that move, and the reason CCA's yield is now well above the 15% mark, can be traced to the U.S. Justice Department's decision in mid-August to end its practice of hiring private companies to manage the prison population. In the coming years, the DOJ plans to phase out the use of privately operated prisons, with Deputy Attorney General Sally Yates commenting that they simply don't save the federal government much in costs.

While this is far from good news, and the $2.16 per share in funds from operations (FFO) that the company is paying out via dividends is probably not sustainable, Wall Street appears to have overshot to the downside with its pessimism.

CCA's management team was quick to point out after the DOJ announcement that only prisons associated with the Federal Bureau of Prisons are affected. For CCA, this equates to 7% of its total business. Think about this for a moment: 7% of its total business being affected effectively wiped out two-thirds of its valuation. Doesn't make a lot of sense to me, and it's something you, the reader, should be questioning as well.

The long run outlook for CCA still appears to be favorable. The U.S. had the highest incarceration rate in the world as of 2013, 716 persons out of every 100,000 in a correctional facility. Despite having just over 4% of the world's population, the U.S. accounts for 22% of all incarcerations. Even with an easing of drug offenses surrounding marijuana, it's going to be tough to reverse this trend at the judicial level. I believe this implies a constant need for CCA's services.

Even with reduced EPS estimates going forward, it wouldn't be surprising if CCA's dividend yield stuck around 10%, or higher, given that it's a real estate investment trust and required pay 90% or more if its earnings to shareholders. There could be a few hiccups left for CCA to contend with, but this appears to be a broken stock trading at an attractive valuation and not a broken business model.


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Mobile TeleSystems

A final bargain bin high-yield stock worth a look is a telecom giant you've possibly never even heard of before: Mobile TeleSystems (NYSE: MBT). Mobile TeleSystems, or MTS as it's more commonly known, is Russia's largest mobile telecom operator, and like the other companies above it's had a rough past few months. Despite being up for the year, it's down 15% over the trailing three-month period.

The biggest issue for MTS is its size. Russia's mobile market his highly concentrated and competitive among just a few players, and the mobile phone saturation rate is exceptionally high. In easier-to-understand terms, Wall Street pundits are having a hard time deciphering where MTS' next wave of growth is going to come from.

Adding fuel to that fire, Russia's ruble has been extremely volatile as crude prices have fallen. Crude is a major source of revenue for the Russian government, meaning a decline in crude prices has a major impact on its economic growth. MTS also recently exited the Uzbekistan market, which coerced the company to lower its full-year sales and profit outlook.

In spite of these very real concerns, there are a handful of reasons why Mobile TeleSystems could be worth a closer look.

Arguably the biggest reason to consider buying a telecom providers like MTS is the opportunity for data package and network upgrades. We often take for granted our access to 4G and LTE networks in the U.S., whereas we fail to realize that only some of the largest Russian cities have access to these data speeds. There are areas within Russia and its neighboring countries that are still introducing 3G technology. As this network rollout continues over the coming decade, the demand for smartphones and larger data packages is only likely to increase, giving MTS that elusive second-wave of growth.

Fundamentally, Mobile TeleSystems is more than capable of generating $4 billion-plus in cash from its operations each year, which should help fund small acquisitions to expand its spectrum, as well as boost its efforts to roll out LTE networks in more Russian cities. Remember, the bigger the LTE presence, the more likely consumers are to demand bigger data packages, and therefore the better pricing power for MTS.

Currently valued at less than nine times next year's projected profits and toting around a dividend yield of close to 11%, this somewhat volatile emerging market telecom provider looks every bit the part of a bargain bin high-yield dividend stock.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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