These six oversold dividend stocks with high yields are worth buying as their yields will help the stock return to metrics of intrinsic value. Over time, investors can bank on these yields to help them make money.

The fundamental reason for this is the concept of reversion to the mean. The idea is that oversold dividend stocks have higher-than-their-average dividend yields.

The working investment theory is that over time, given similar earnings and growth as in the past, the stock price will rise. This effectively lowers the dividend yield and drives it to revert to the mean or average dividend yield.

As a result, this becomes an effective investment methodology — finding oversold dividend stocks with higher-than-their-average dividend yield. Often, value investors use this along with other value metrics to pick stocks.

Let’s look at some of these stocks:

Oversold Dividend Stocks: NRG Energy (NRG)

• Market Cap: $8.62 billion

NRG Energy (NYSE:NRG) is a Houston-based electric utility company whose stock is down over 14% year-t0-date (YTD). The company pays a solid $1.40 annual dividend payment on a quarterly basis. Right now, at $37 per share, that gives it a dividend yield of 3.783%.

But this is well above its historical dividend yield. In other words, if the stock were to rise, the $1.40 dividend yield would fall to its historical yield level.

For example, Seeking Alpha says that its average four-year dividend yield is 1.86%. So, this means if we divide its $1.40 dividend by 1.86%, the target price is $75.27 per share. That is 103% over today’s price of $37.

But Morningstar reports that the average five-year dividend yield has been 1.6%. That in and of itself implies a target price of $87.50, or 136% higher.

Keep in mind that NRG has paid its dividend for the past nine years and in fact, it has raised it every year for the last three years. That makes the likelihood that it will pay the dividend in the future very secure. It also implies that the dividend yield will fall to its historical averages (i.e., the stock will rise).

Lastly, NRG Energy makes well enough to cover the $1.40 dividend. Analysts forecast the 2022 earnings per share (EPS) will be $3.96 and will grow to $4.76 by 2023. That implies earnings growth of 20% over the next year. It also means that the dividend takes up just 35.3% of its earnings forecast for 2022. This implies that the dividend is very secure.

Ally Financial (ALLY)

• Market Cap: $10.6 billion

Ally Financial (NYSE:ALLY), a financial lender to car and home buyers, is down over 30% YTD. But both its earnings and dividends seem very secure. More importantly, the stock’s dividend yield is well above its historical average.

In addition, Ally’s forward price-to-earnings (P/E), at just over 4.2 times earnings, is very low. Moreover, Ally is buying back its own shares very aggressively. All of these factors point to ALLY stock being one of the most oversold dividend stocks.

For example, Seeking Alpha indicates that its four-year average dividend, which has consistently risen over the past five years to $1.20 per share, is 2.31%. But at $33.20 today, the ALLY stock price has a dividend yield of 3.61%.

Therefore, if we apply the historical average yield of 2.31% to its $1.20 dividend payment, the target price is $51.95 per share (i.e., $1.20/0.0231 = $51.95). This implies an upside of 56.5% from today’s price of $33.20.

Moreover, Morningstar says its average five-year dividend yield is even lower at 2.18%. That implies a target price of $55.05, or 67.2% upside from here.

So, the average upside is 61.85%. If it takes two years for this to happen, the average annual return will be 27.22% for each of the next two years. This makes it one of the more attractive oversold dividend stocks.

Oversold Dividend Stocks: HomeStreet (HMST)

• Market Cap: $653.7 million

HomeStreet (NASDAQ:HMST) is a Seattle-based bank that makes commercial, mortgage, and consumer and retail loans. The stock is down 31.6% so far this year to $35.57, which is down from $52 at the end of last year.

That gives its $1.40 dividend payment a 3.94% dividend yield. This is well above the company’s historical four-year dividend yield average of 1.05%, according to Seeking Alpha. It’s also well above the three-year average of 2.4% calculated from data available at Morningstar.

Using the latter rate implies that its price target is $58.33 (i.e., $1.40/0.024), which is 64% over today’s price.

In addition, HomeStreet has a tangible book value per share of $30.47, which means its price-to-tangible-book-value-per-share is 1.167. That is very cheap for a company whose earnings are forecast to grow by 25% to the year ending Dec. 2023.

Moreover, it’s cheap given that its P/E ratio is just 6.6x, well below 10x, which is typical for banks stocks of this size. All in all, this stock is one of the oversold dividend stocks that is likely to climb higher over the next year.

Carter’s (CRI)

• Market Cap: $2.81 billion

Carter’s (NYSE:CRI) is a baby and children’s clothing maker whose stock is off over 31% YTD as of Jun. 17. It’s also down 36.4% from its peak on Nov. 16. Moreover, the stock has a dividend yield of 3.53%, which is well above its historical four-year average of 1.59%.

But the company is not going out of business, as this negative performance in the stock seems to imply. For example, earnings this year are forecast to be positive at $8.94 per share, based on the average of nine analysts’ forecasts. That puts the stock on a forward multiple of just 7.9x, a very inexpensive multiple.

If we take the $2.50 annual dividend, which has been consistently paid over the last eight years, and divide it by the average yield of 1.59%, the target price is $157.23. That is over twice its price today. This makes Carter’s one of the best oversold dividend stocks to buy now.

Oversold Dividend Stocks: Store Capital Corporation (STOR)

• Market Cap: $7.15 billion

Store Capital Corporation (NYSE:STOR) is a real estate investment trust (REIT) and leasing company of single-tenant store offices. Its stock is down 25% YTD as of Jun. 21 at $25.79. This gives the stock a dividend yield of 6.03% with its annual dividend rate of $1.54 per share.

However, its four-year dividend yield average has been 4.55%, according to Seeking Alpha. This is despite the fact that the dividend has risen every year for the past seven years.

In other words, the yield is too high now and the stock price is likely to rise to lower the yield to its historical average. That implies a potential gain of 31% to $33.85 per share (i.e., $1.54/0.455).

Moreover, the $1.54 annual dividend is well covered by the company’s earnings, measured by its funds from operations (FFO). Analysts forecast its 2022 FFO will be $2.17 in 2022 and $2.24 in 2023. This makes this REIT stock one of the oversold dividend stocks worth buying, assuming the stock reverts to its mean dividend yield.

Essential Properties Realty Trust (EPRT)

• Market Cap: $2.74 billion

Essential Properties Realty Trust (NYSE:EPRT) is a REIT focused on leasing offices to restaurants, car washes, automotive services, and medical and dental services operators. The stock is down 27.8% YTD and the dividend yield has risen to 5.2% based on its annual dividend payment of $1.08.

Given that its historical average yield over the last four years has been 3.66%, EPRT is worth $29.51 per share. That is 41% over the price on Jun. 21 of $20.93. This can be seen by dividing the dividend of $1.08 by 3.66%.

Moreover, the company’s earnings more than cover the dividend payment. Analysts forecast its FFO to reach $1.61 this year and $1.70 next year. So, there is little reason to prevent the stock from reverting to its mean yield of 3.66% from 5.2% today. That makes it one of the oversold dividend stocks worth buying now.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.