2020 has been an unprecedented year with enormous amounts of volatility and significant divergences in returns between stocks. Huge amounts of FED stimuli and the economic shift to technology due to COVID-19 significantly improved sentiment around tech stocks like Apple (AAPL), Amazon (AMZN), Shopify (SHOP), Nvidia (NVDA), among others.

Meanwhile, dividend and value stocks have disappeared in the background. This is for example visible in the strong underperformance of the dividend aristocrats (NOBL) (-4.1%) compared to the tech-heavy S&P 500 (SPY) (+3.7%) as you can see in the chart below.

With bond yields at record lows and tech stocks being priced to perfection, we anticipate a significant inflow of money into value and dividend stocks over the coming years. You can read more about this topic in my recent article.

Additionally, uncertainty about the stock market has never been this high as stocks are priced very expensively and the economy will take years to recover. Therefore, fixed income streams like dividends might become as important as ever to accumulate your wealth over the next decade.

U.S. Dividend Aristocrats Relative to S&P 500 and U.S. 10-Year Bond Yield – ISABELNET

(Source: JP Morgan)

However, we should not underestimate the impact of this financial crisis on several value stocks. Some companies might need to cut their dividend soon if the economy bounces back less than anticipated. Moreover, many industries face a significant shift which makes several companies’ operations less valuable, creating risks for shareholders.

To only pick the best stocks, it might be interesting to look at stocks that insiders purchased over the past months. Insiders are the managers and directors of the firm who are in front of the financial and strategic decision-making of their company. Consequently, they know their company better than anyone else. They know whether dividends will be raised or not, how its sector will perform, how much growth might be expected, etc.

If the stock is too cheaply valued compared to its fundamentals, the insider purchases his/her own stock to make a profit. I have spent a lot of my lifetime into empirical research on insider outperformance and found that insiders on average outperform the S&P 500 by a significant 2.89% annually. Moreover, I created a formula that picks out winning insider stocks based on fundamentals which yielded an average annual excess return of 12.90%.

Thus by tracking these insider purchases, we can increase our confidence that the stocks that we buy are the right ones at the right price. In this article, I will provide 3 of the many interesting dividend opportunities that insiders purchased recently.

1) AT&T (T): 7.2% yield – a BUY only for the yield

Market capitalisation $206 bln
Dividend yield 7.2%
Dividend 5-year annual growth rate 2%
Free cash flow yield TTM 12.55%
P/E ratio (TTM, non-adjusted) 17.74x
Return on invested capital (“ROIC”) 6.34%
Leverage ratio 2.65x

(Source: Author’s research based on company SEC filings)

AT&T, the famous telecommunications and media company known for its dividends, saw some very strong insider purchasing activity over the past months as the stock fails to recover from the March crash. The stock is still down 26% YTD and down 11% over the past five years. The following insiders purchased in 2020:

Date Name Position Price Value of purchase
2020-07-27 Stephen J Luczo Director $29.69 $2,969,220
2020-04-27 Geoffrey Y Yang Director $29.39 $198,466
2020-04-23 Stephen J Luczo Director $29.38 $1,057,579
2020-02-04 Stephen J Luczo Director $37.60 $3,760,380

(Source: Author’s research based on company SEC filings)

Generally, AT&T is a stock with a lot of insider buying activity, as you can see below. It is very remarkable that insiders already purchased $7.99 mln worth of shares year-to-date (after 2018 the highest number disclosed) which might indicate that the shares are grossly undervalued.

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AT&T stock insiders

(Source: Author’s research with Tradingview)

AT&T insider purchases (Source: Author’s research)

Financial and dividend performance

AT&T is an amazing company for dividend investors. It has a long history of increasing dividends by 4 cents each year. Important things to look at when analyzing the sustainability of dividends are the indebtedness and the cash flow generation. AT&T’s leverage ratio of 2.65x is elevated after the recent acquisition of Time Warner, but will be reduced easily over the coming quarters. Cash flow generation is very strong and grew by a CAGR of 24% over the past five years (partially due to some working capital impact in 2014). The cash flow payout ratio (dividend/cash flow) is only at 57%, which indicates that the company’s high dividend is very safe.

AT&T financials growth dividend(Source: Author’s research; numbers in $mln except dividend per share)

Stock upside of 25%: $36.3 price target

Many investors are wondering why the stock has barely moved over the past decade while revenues, cash flows, and profits increased significantly. There is one answer to this question: a low return on invested capital (“ROIC”).

The return on invested capital (operating income/invested capital) is a very strong metric to explain how much shareholder value a company can generate (excluding dividends) in the long term. If you would like to, you can read my in depth article about this metric.

It basically tells us how much income the company can generate with the money it invests (debt and equity). A high ROIC indicates that the company has a competitive advantage and has a strong management team which invests in the right projects.

The ROIC of AT&T is low at 6.34%, for sure if you compare it to the average 4.4% interest the company pays on its debt and if you compared it with competitors like Verizon (VZ) (12.6%) and T-Mobile US (TMUS) (8.6%). AT&T has grown its debt by 156% over the past 10 years to invest in new projects. But they are not paying off and thus they barely generate any shareholder value. If it wouldn’t be for the debt increases, growth would be far less impressive.

Until management can turn this ROIC higher, the stock won’t go anywhere. The new growth cycle of 5G and further growth in HBO Max, the streaming service which they acquired by buying Time Warner, could be two important projects which can turn things around. But I’m skeptical about that given the weak historical performance of the management. My price target of $36.3 is based on 10x my free cash flow expectations for 2021.


AT&T has strong financials and the high recent insider purchases are certainly a positive indicator. However, I believe that those who want to invest in AT&T need to do it only for the sustainable dividend yield of 7.2% without any expectations about the stock price. Unless HBO Max and/or the 5G projects outperform expectations (perhaps insiders are betting on this?), I don’t believe the stock will do much.

2) Xerox (XRX): 5.4% yield – a BUY for the yield and the turn-around potential

Market capitalisation $3.97 bln
Dividend yield 5.4%
Dividend 5-year annual growth rate 0%
Free cash flow yield TTM 23.38%
P/E ratio TTM (non-adjusted) 9.14x
Return on invested capital (“ROIC”) 13.95%
Leverage ratio 1.14x

(Source: Author’s research based on company SEC filings)

Xerox, one of the leading printing companies, experienced very high insider buying activity recently. Insiders are buying the dip as the stock is down 48% YTD and 30% over the past five years. Here are the insider purchases in 2020:

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Date Name Position Price Value of purchase
2020-08-07 Cheryl Gordon Krongard Director $16.29 $244,322
2020-08-07 Carl Icahn 10% shareholder $16.31 $29,578,101
2020-08-14 Carl Icahn 10% $17.41 $22,789,773
2020-08-19 Carl Icahn 10% $18.12 $13,156,269
2020-08-21 Cheryl Gordon Krongard Director $18.77 $187,730
2020-09-09 Carl Icahn 10%



(Source: Author’s research based on company SEC filings)

The Carl Icahn purchases are very interesting given the high value. Carl Icahn is a legendary investor who generated an annual return of 15.01% since 2001, outperforming the market by a mile. Although he was wrong on Hertz (HTZ) recently, he is known to pick out the best value stocks and create value out of the cash flows they generate. It looks like that’s his intention with Xerox as well.

Xerox stock price insiders

(Source: Author’s research with Tradingview)

Financial and dividend performance

Xerox hasn’t been the best story on the market. Sales have declined on average by 8.19% annually over the past five years as it is operating in a stagnating printer business. However, the company generates very strong cash flows. The dividend has been kept steady at $1, which currently gives a solid yield of 5.4% to investors. This dividend is more than safe as Xerox has a strong balance sheet (leverage ratio of 1.14x) and a very low payout ratio of 23.1%. Management intends to keep the dividend steady as they see much more opportunities in buybacks right now.

Xerox financials dividend growth (Source: Author’s research; numbers in $mln except dividend per share)

Stock upside of 58.2%: price target of $30.07

On top of the high yield, Xerox could be a very interesting stock to buy as a turnaround story.

Revenue growth is very weak, but it doesn’t have to be strong in order for this to be a good turnaround story. Operating margins are improving drastically (9.8% to 12.45% over the past five years) as a consequence of operational efficiencies and strong pricing power. As such, the company was able to grow profits with shrinking revenues.

The stock price, after the recent COVID-19 crash, is way too low. Currently, the stock is trading at a free cash flow yield of 23.38%. This tells us that if the company can keep cash flows constant, it will be able to buy back all of the shares in five years. Xerox has always been a strong buyer of its own shares with a reduction of its share count by 31% over the past 10 years. I expect this to increase significantly given the current depressed share price.

Of course, Xerox’s printing business is impacted by the work-at-home trend with sales down 35.3% YOY in Q2. However, cash flows were still positive and I expect revenues to improve drastically over the following quarters.

My price target of $30.07, implying 58.2% upside, is based on 8x my free cash flow expectations for 2021 (down from $1,100 mln in 2019).


Xerox is trading at a very solid 5.4% dividend yield. This dividend is more than safe, but won’t be increased because buybacks are too interesting at this moment. Xerox is a pure turnaround story. If margins can keep trending upwards post-pandemic, the stock price could increase significantly. The insider purchases are very positive given the fact that Carl Icahn is a legendary investor. As majority shareholder, he will do everything to get value out of his holdings (he tried to merge with HP earlier in 2020, but this attempt failed).

3) Insperity (NSP): 2.5% yield – A BUY for the yield and the growth

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Market capitalisation $2.4 bln
Dividend yield 2.5%
Dividend 5-year annual growth rate 26.53%
Free cash flow yield TTM 6.96%
P/E ratio (TTM, non-adjusted) 15.1x
Return on invested capital (“ROIC”) 118.85%
Leverage ratio -0.81x

(Source: Author’s research based on company SEC filings)

Insperity is a strongly growing HR services company which provides software for small and mid-sized companies for employment operations (payroll, employee support, health insurance). The stock is down more than 50% from its 2019 high and 28% YTD due to some growth concerns and the impact of COVID-19. Insiders took advantage of this (unjustified) sell-off with two insider purchases in 2019 and one in 2020:

Date Name Position Price Value of purchase
2020-08-07 Randall Mehl Director $64.00 $128,000

(Source: Insider Opportunities research based on company SEC filings)

Insperity stock price

(Source: Author’s research with Tradingview)

Financial and dividend performance

Insperity has seen tremendous growth in the past. Revenue grew by a CAGR of 12.85% over the past five years. Free cash flow growth of 3.96% was pressured by some temporary working capital changes and higher CAPEX. Over the past five years, the company on average has been accelerating dividend payments with an average growth rate of 26.53% per year. There is still room for expansion as Insperity has a net cash balance and a payout ratio of only 35.9%.

Insperity financials dividend growth (Source: Author’s research; numbers in $mln except dividend per share)

Stock upside of 63.11%: price target of $102.76

Insperity is performing very well and should be able to keep doing so over the coming years. Impressively, despite its exposure to small companies, they are pretty resistant against COVID-19 with EPS expected to drop only ~7% in 2020. This shows again that it is providing services that are essential to many businesses.

The stock is way too cheap for such a growth story at a P/E of 15.1 and free cash flow yield of 6.96%. If the company can return to growth again post-COVID (which I expect them to do), the stock has a lot of upside left. It looks like insiders have confidence that growth will improve indeed.

My price target of $102.76 is based on 20x my expected cash flow for 2021, which is still conservative.


I consider Insperity to be a very good stock at current levels for investors who are looking for growing dividends. The yield of 2.5% is relatively low, but could increase to ~5% in 3 years if the management continues its historical dividend increases. Insperity’s services are vital to many companies and it should be able to keep expanding its business significantly.

NOW is the time to find out about the best value stocks

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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