R.R. Donnelley (RRD)
It’s hard to find a more boring company than R.R. Donnelley (RRD). It both prints and creates custom content (e.g., annual reports) for private and public companies.
In other words, RRD could be thought of as a hot tech stock … if we were still in the Middle Ages.
So it’s somewhat of a surprise that RRD also prints cash. Levered free cash flow came to more than a half-billion dollars over the trailing 12 months. Furthermore, because RRD has comparatively few shares outstanding, it only paid $189 million in dividends last year — even with a whopping yield of 6.7%.
R.R. Donnelley also looks extremely cheap. RRD trades at a little more than 9 P/LFCF. The forward P/E is likewise 9. That’s a discount of more than 40% compared to the broader market. And RRD has a growth trajectory that lags the S&P 500 by only about a percentage point.
Of course part of the reason for the high dividend is a slumping share price. (That’s always something to consider when hunting for dividend stocks.) After a stunning rise in 2013, RRD has lost 23% so far this year, wiping out any gains from the dividend. That’s partly due to weak top-line growth. But the levered free cash flow multiple suggests that shares are beaten down more than enough.
Furthermore, RRD’s strategy hangs on making acquisitions and it certainly generates enough free cash to keep doing deals.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.