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Multi-Bagger Potential with Huge Dividends – For Under $7!

2 stocks with multi-bagger potential, huge dividends, and limited downside risk.


Let’s talk about cheap dividend stocks. They are the most likely candidates to return multiples of your investment. It’s pure Peter Lynch — buy underfollowed businesses that do things people don’t understand. Eventually, the market catches up. By then, you’ve already got your money invested in this value business and you reap big rewards.

best dividend stocksIf it’s a dividend stock, that’s even better! It means the company is solid enough financially that it can afford to pay its shareholders while they wait for everyone else to catch up.

If it’s a cheap dividend stock, then I’m really paying attention, because it means the market is not only overlooking it, it also has limited downside.

This is the strategy I used to make a lot of money in pawnshop stocks over the years. People know what a pawnshop is, but not how it makes money or how to invest in it. I did, and have done very well.

I’ve found two candidates that happen to be dividend stocks. Even better, these dividend stocks are all under $7 — that means you can invest on the cheap and downside is limited.

Intersections Inc. (INTX)

Intersections (INTX) is exactly my kind of play, and after I ran my due diligence, I purchased shares last week. Intersections plays in three diversified spaces. One is consumer credit monitoring and identity theft products, and you’ve seen their products under the Identity Guard brand.

This is a large and growing product in our increasingly-paranoid times, and events like the Target (TGT) data breach only help. Oh, and INTX also offers data breach remediation to cover an issue like this. The credit product is primarily offered through financial institutions like banks, so I’d like to see more marking muscle, but with some 3 million subscribers in a high-margin business, there’s plenty of room for growth.

Intersections also offers online solutions for the bail bonds industry. It sounds odd, but this is a multi-billion dollar industry that needs servicing solutions. It requires specialized knowledge to produce software for it, so there’s a high barrier to entry. INTX also has a series of products that include insurance, customer loyalty programs, and Zumetrics — the popular retail business data analytics service.

INTX has solid free cash flow because it has almost no capex. It pays out 50-60% of its free cash flow as dividend yield. With the stock at $3.57, that dividend yield is now a whopping 18%. I believe it is sustainable, even if the company merely maintained its present position and didn’t grow. By the way, it also has $1 per share in cash, so there’s little downside buying in at an effective price of $2.57.

With the stock price so low, and the company working in growing industries, this feels like it has multi-bagger potential.

Feeling nervous about it? You can hedge your position by buying January 2015 $2.50 puts for 25 cents. So if the stock should fall below $2.25 by January, you are protected.

Atlantic Power Corporation (AT)

Atlantic Power Corporation (AT) is a diversified power provider stretching across several western states and Canada. The company has partial or full ownership of 15 natural gas, five wind, four biomass, four hydro, and one pulverized coal power-producing assets. I’m normally not fond of clean energy investments, because I question their long-term viability. However, the demand for this energy exists and doesn’t seem to be waning, so don’t fight the trend.

Atlantic is in the midst of a turnaround, and doing rather well.

Atlantic has $221 million in cash, offset by $1.83 billion in debt that costs about 7% annually to service. This comes after the company refinanced its near-term debt from 9%. Revenue is exploding — growing from $94 million in FY11 to $552 million in FY13. Cash flow is fantastic, as the company has already put forth most of its capex: $146 million in FCF flow in FY13 threw off $83 million in dividends. That’s after a dividend cut, and I don’t see another cut being necessary.

That’s because Atlantic has long-term power purchase agreements in place. Unlike other energy producers who are beholden to commodity prices shifting around, the long-term lock eliminates that risk.

I think this is a long-term play, and one that may return multiples of its investment, given the revenue growth. AT stock is at $3.70, and you get paid a massive 10% dividend yield while you wait.

As of this writing, Lawrence Meyers was long INTX. He is president of Asymmetrical Media Strategies, a crisis PR firm, and PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at and follow his tweets at @ichabodscranium.

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