3 Rock-Solid, High-Yield Dividend Stocks With A P/E Under 11
By Sean Williams | June 05, 2017 |

The dream of every income investor is to find a rock-solid, high-yield dividend stock (usually defined as a stock with a 4% or greater yield) that they believe can continue to produce above-average payouts for years to come.

Since dividend stocks tend to form the foundation of most retirement portfolios, high-yield dividend stocks are often in high demand by investors, which also means they're usually valued at a premium. Finding rock-solid, high-yield dividend stocks trading at a cheap valuation is rare, but it does happen from time to time.

Currently, there are three high-yield dividend stocks valued at a P/E of under 11, yet their business models look, at least to this Fool, to be rock-solid. Best of all, they're off the radars of most investors, meaning you may be able to grab them for quite the bargain while also pocketing significant annual dividend income.

1. Alliance Resource Partners
Perhaps the cheapest and best-kept high-yield dividend secret is Alliance Resource Partners (Nasdaq: ARLP), a limited partnership that mines and markets coal to utility and industrial users.

The reason Alliance Resource Partners is so cheap is pretty easy to figure out: Coal demand has fallen, and so have spot prices for coal. Its peers that were highly exposed to wholesale coal market pricing and heavily leveraged either went bankrupt, or are simply trying to stay afloat. However, this hasn't been an issue for Alliance Resource Partners.

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A key reason the company has been so successful over the long run is its focus on securing contracts years into the future. As of the end of the first quarter, Alliance Resource had 35.5 million tons committed for 2017, as well as 19 million tons in 2018, 9.1 million tons in 2019, and 4.3 million tons in 2020. The further out the company books production, the less variation it'll have in sales and cash flow caused by wholesale price movements.

Additionally, Alliance Resource Partners has done a great job of cutting expenses by shifting production to its lowest-cost mines. It wound up cutting expenses by nearly $1 million during the first quarter from the prior-year period, all while increasing production to 10.22 million tons from 8.88 million tons in the first quarter of 2016. This cost-cutting was critical to allowing the company to handily blow past Wall Street's first-quarter EPS estimates.

Lastly, don't forget that coal still accounts for nearly a third of all U.S. electricity generation. Even though we've witnessed a push toward alternative energy platforms like solar and cleaner energy such as natural gas, coal isn't going away. This should allow coal stocks with stronger balance sheets, like Alliance Resource Partners, to thrive.

With a P/E of just 5 and a current dividend yield of 8.1%, income stocks simply don't get more rock-solid or attractive than this.

2. American Eagle Outfitters
Though apparel stocks may not often be viewed as rock-solid dividend-paying investments, I'd suggest the exception to the rule is teen-based retailer American Eagle Outfitters (NYSE: AEO).

Why has American Eagle Outfitters' stock lost nearly 40% of its value since last summer? The blame can primarily be placed on increased competition from e-commerce retailers like Amazon.com, which can undercut the prices of brick-and-mortar stores, as well as weaker consumer demand. Weather patterns that were well outside the norm have also contributed to weaker-than-expected results.

While far from optimal, American Eagle has the wherewithal to withstand industry fluctuations thanks to its seasoned management team and pristine balance sheet. As a longtime follower of American Eagle Outfitters' stock, one aspect I've always been impressed with is management's ability to move undesirable merchandise. Rather than allow inventory issues to drag, the company is quick on its feet with discounting when needed in order to get higher-margin inventory that consumers want in its stores. It's rare that American Eagle has inventory issues last beyond two or three quarters.

The company also ended its latest quarter with $225 million in cash, down $14 million from the prior-year period. However, it also repurchased $110 million worth of its own common stock during the first quarter. If it were merely focused on growing its cash balance, it can generate between $300 million and $400 million in free cash flow each year. Comparatively, it has no debt.

Finally, American Eagle Outfitters has a highly sought after brand-name product among teens, and it's been reinvesting heavily in its e-commerce brand. Compared to other teen-based and mall-based retailers, it's in far better shape.

With a current P/E of 11 (compared to an industry average of 18) and a dividend yield of 4.4%, this looks to be a rock-solid clearance rack deal for income investors.

3. Mobile TeleSystems
A final rock-solid, high-yield dividend stock worthy of your consideration is Mobile TeleSystems (NYSE: MBT), one of Russia's largest telecom service providers. It also operates in Ukraine, Turkmenistan, and Armenia.

There are two primary reasons Mobile TeleSystems, which also known as MTS, has seen its share price pummeled in recent years. First, the company has been hammered by Russia's struggling economy, which has been hurt by a 50% decline in crude oil prices. Investors assume Russia's economic struggles will trickle down to the consumer and/or hurt MTS via a weaker ruble. The other issue is simply debt. After reducing its net debt in four consecutive quarters, MTS's total debt increased to $9 billion in the fourth quarter of 2016.

Despite spending quite heavily on its network infrastructure, there are a handful of reasons for value-seeking income investors to be attracted to this company. Probably the most attractive aspect of owning MTS stock is that Russian's telecom networks are still being upgraded. In the U.S., we take 4G and LTE network speeds for granted. In Russia, MTS is counting on an expansion of 3G and higher speed networks to draw in new smartphone consumers. These consumers are its bread and butter thanks to high-margin data plans.

Along those same lines, upgrades to 4G and LTE provide an impetus for Russian consumers to potentially trade in their 3G smartphones for newer, faster versions. This ongoing upgrade cycle is a pathway to mid-single-digit growth for this industry giant.

Mobile TeleSystems also recently completed its exit of the Uzbekistan market following allegations of corruption. Leaving Uzbekistan should allow it to focus on its core Russian and Ukraine markets, leading to improved margins.

Sporting a P/E of 10 compared to an industry average of 23, and a dividend yield of nearly 9%, MTS is a cheap telecom stock that could have income seekers jumping for joy.

This article originally appeared on The Motley Fool.