Finding undervalued stocks in today’s market is a tricky business. If you’re a value investor who is looking to beef up your retirement portfolio, it’s essential to choose firms that have fallen out of favor with Mr. Market but look poised to make a comeback once the dust has settled.
Hot new tech stocks tend to grab the headlines when it comes to earnings growth, but if you’re in the market for long-term plays, dividend stocks are the place to start looking. Not only are you gaining a passive income stream, but dividend stocks also offer investors a consistent, dependable return that growth plays simply can’t.
Here’s a look at three undervalued dividend stocks that are worth considering for your long-term portfolio.
Dividend Stocks to Buy: AbbVie (ABBV)
Dividend Yield: 3.9%
Big pharma has been a turbulent space over the past few years as concerns regarding drug pricing have weighed on investor sentiment in the sector. However, there are certainly deals to be had within the industry, and AbbVie (NYSE:ABBV) is one such bargain. ABBV stock is down 18% from its February highs on worries about slowing growth in the firm’s key drug Humira.
The Humira concerns are certainly something to keep in mind — the drug makes up more than half of ABBV’s overall revenue — but it’s worth noting that the company has plenty of growth opportunities to rely on in the future. For one, even though competition is taking away from Humira’s marketshare, the drug is expected to be the best-selling drug in the world through 2024.
On top of that, ABBV has a few other drugs in the works that should bolster the firm’s earnings growth over the next few years. Dividend investors will like the firm’s nearly 4% dividend yield that looks safe for the foreseeable future.
Dividend Stocks to Buy: Walgreens Boots Alliance (WBA)
Dividend Yield: 2.5%
It’s rare to see a dividend aristocrat go on sale because their reliable, ever-increasing dividend payments often offset the effects of bad news. However, pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA) has seen its share price struggle over the past five years as uncertainty within the U.S. healthcare system weighed on investor sentiment.
Of course, it’s worth noting that there are some very real risks to the pharmacy industry as healthcare in America changes shape and e-commerce shakes up the way people buy their medicine, but WBA looks solid enough to weather the storm while maintaining and raising its dividend payments.
First of all, WBA isn’t just an American business — the firm also has a massive presence in the UK which will help mitigate any major shifts in the U.S. market. Right now the firm’s dividend yield is a respectable 2.5% but that figure could continue increasing in the years to come — Walgreens has upped its dividend payments every year since 1976.
It’s true that e-commerce could disrupt the way traditional pharmacies like Walgreens operate, but it’s also worth noting that companies like WBA are much better prepared for a so-called “retail apocalypse” than, say, departments stores were. Adjusting to changing consumer behavior is a challenge for sure, but not something that’s likely to put WBA out of business.
Dividend Stocks to Buy: International Business Machines (IBM)
Dividend Yield: 4.3%
Perhaps the most underappreciated stock on this list is tech company International Business Machines (NYSE:IBM). Yes, the company has been telling investors that a turnaround is on the horizon for quite some time and yes, it hasn’t quite materialized yet — but keep in mind that the company’s massive size makes a large-scale strategy shift difficult to pull off quickly.
However, IBM has made a lot of progress toward its goal of expanding strategic imperatives and relying less on its antiquated hardware arm. CEO Ginni Rometty has shifted the firm’s focus to high-growth technology like artificial intelligence, security and cloud computing, and that shift appears to finally be paying off. IBM’s most recent earnings report showed that sales are finally back on the rise which is an encouraging sign for investors. However, more importantly, the company’s strategic imperatives- the part of the business that houses AI and cloud computing — finally makes up the majority of the company’s overall revenue.
Not only does IBM have a massive turnaround in store, but the company pays out a 4.3% dividend yield, making it an excellent long-term choice.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
