From today's fin. Intelligent Investor research director Nathan...

From today's fin.

Intelligent Investor research director Nathan Bell believes stocks that pay a high, seemingly reliable dividend have been bid up too high. "So much so that we're actively looking for stocks that don't pay high dividends, because they are so much more likely to be undervalued," he says.

Pokies manufacturer Ainsworth Game Technology fits Bell's criteria. He says: "Ainsworth doesn't pay a big fully franked yield today, but if its expansion in the United States is successful over the next five years, investors will enjoy significant capital gains in addition to a rapidly growing dividend."

Ainsworth has slumped from 40 per cent from its 52-week high of $4.65 after reporting disappointing profit growth in August and not providing earnings guidance. It flagged a lower first-half profit for 2014-15 at the AGM in November.

Bell says: "Ainsworth is currently in the sin bin for a year of flat profit, but once it completes its new manufacturing plant in Las Vegas it will be well positioned to compete in an increasingly concentrated market. It won't happen overnight, but given Ainsworth's record, we are more excited about its prospects than many seemingly safe small-cap dividend payers that are highly reliant on a strong Australian economy and trade at valuation multiples well beyond what they deserve in the long run."
At $2.75, Ainsworth is expected to yield almost 4 per cent in 2014-15, using consensus forecasts.