6 Undervalued Stocks With Growing Earnings and Dividends


  • These undervalued dividend stocks have growing earnings and dividends. That makes them suitable for investment during these troubled times of high inflation and potential stagflation.
  • Broadcom (AVGO): A fast-growing tech stock with 26.8% earnings growth this year and 14% dividend growth.
  • Goldman Sachs (GS): One of the top investment banks with growing earnings and dividends despite a recession.
  • Emerson Electric (EMR): An engineering firm with good earnings growth and 64 years of higher annual dividends.
  • Paccar (PCAR): A major truck manufacturer with good earnings growth and 12 years of consecutive dividend growth.
  • Qualcomm (QCOM): A semiconductor chip designer with good earnings and dividend growth.
  • Owens Corning (OC): A fiberglass, insulation, and roofing firm with good growth and seven years of dividend growth.
dividend stocks

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Each entry in this list of undervalued stocks has good dividend growth prospects and appears to be undervalued. That’s an excellent combination for an investor. After all, typically a company will not keep raising its dividends unless the underlying earnings and cash flow are growing as well. That bodes well for these undervalued dividend stocks.

On the other hand, high-growth companies typically do not pay out dividends. So, in a way, this is the best of both worlds. These companies have good growth, but aren’t so focused on it that they can’t afford to return capital to their shareholders. And they are still growing their earnings — otherwise, they wouldn’t keep raising their dividends.

For example, many companies that are expanding their dividends generate enough free cash flow to also buy back stock and make acquisitions. Both of these can lead to higher earnings per share and also higher dividends per share.

Some of these stocks are fairly recession-resistant as well.

Let’s dive in and look at these undervalued dividend stocks:

AVGO Broadcom $582.67
GS Goldman Sachs $303.44
EMR Emerson Electric $84.45
PCAR Paccar $83.28
QCOM Qualcomm $133.91
OC Owens Corning $93.55

Broadcom (AVGO)

broadcom (AVGO) logo outside office building

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Market Cap: $240 billion

Broadcom (NASDAQ:AVGO) is a semiconductor chip design and software firm. Its recent growth is due to the rise of the 5G telecom market.

Broadcom produces a massive amount of free cash flow (FCF). It made $13.7 billion in FCF based on $28.5 billion in revenue in the last 12 months (LTM). That’s 48% of revenue making it to free cash flow. This is one of the highest FCF margins for any tech stock.

AVGO’s FCF covers its ample dividend. For example, it pays a $16.40 per share annualized dividend, giving it a 2.8% dividend yield. The dividend cost just $6.1 billion in the LTM period, 44.5% of its $13.7 billion FCF.

AVGO has raised its dividend each of the past 11 years. The stock is not that expensive at just 16 times forward earnings forecasts. This is another reason why AVGO stock is one of the most popular undervalued dividend stocks.

The Goldman Sachs Co (GS)

The Goldman Sachs (GS) logo is displayed on a smartphone in front of a multi-color background.

Source: Volodymyr Plysiuk / Shutterstock.com

Market Cap: $100 billion

Goldman Sachs (NYSE:GS) is the premier investment bank in the world. In Q1 it made a very high return on tangible equity (ROTE) of 15.8%. At its previous close of $303.44, it does not trade at a huge premium over its tangible book value of $293.31.

This is just 1.05x tangible book value (TBV). TBV value eliminates non-hard asset items like goodwill and intangible assets. Therefore, investors make a 15% ROTE since they are only paying 4.5% over TBV.

GS has enough earnings power to keep paying its dividend. At $8 per share, the dividend is 20.8% of the forecast $38.37 EPS. Next year analysts forecast $40.71 in EPS.

After all, GS has been paying a dividend for the past 22 years, raising them for the past five years. This should give investors comfort that it will be able to keep paying dividends even if there is a severe recession going forward.

Emerson Electric (EMR)

Businessman or engineer working on business process automation or algorithm with flowchart on computer screen

Source: NicoElNino / Shutterstock.com

Market Cap: $50 billion

Emerson is an engineering products company with products in automation, valves, and process control software. Right now it pays a $2.06 dividend, giving the stock a 2.5% dividend yield. This is just less than half of the forecast $5.05 EPS for this year. Next year earnings are forecast to rise to $5.45.

More importantly, EMR has paid out a dividend to its shareholders for each of the past 64 years — and has increased its dividend in each of those years. That should give investors confidence that the dividend will keep rising even if there is a coming recession.

In addition, at $84.45 as of the close on May 16, this puts EMR stock on a forward P/E of just 15 times earnings. That is a reasonable multiple for a company with such consistent dividends.

Paccar Inc (PCAR)

Self-driving truck stocks: a self-driving truck on the road

Source: Mike Mareen / Shutterstock

Market Cap: $29 billion

Paccar (NASDAQ:PCAR) makes light, medium and heavy-duty commercial trucks in various plants throughout the world. It has a very profitable business, forecast to make $7.08 EPS this year, up 33% over last year, despite a possible recession. Moreover, analysts predict 11.7% higher earnings next year at $7.98. At $83.28, PCAR stock on a cheap forward multiple of 10.4x.

Moreover, PCAR stock pays out a $1.36 dividend or just 19% of this year’s forecast earnings. It also gives the stock a dividend yield of 1.6%.

On top of this, the company has paid a dividend in each of the last 32 years. In the last 12 years, the company has raised its dividend each year.

This makes the stock one of the most valuable undervalued dividend stocks. At 10x earnings, a 1.6% yield, a 19% payout ratio, and a 33% earnings growth rate, this stock is a good investment for value investors.

Qualcomm Inc (QCOM)

Qualcomm (QCOM) logo on a large sign with another sign that says 5G

Source: Xixi Fu / Shutterstock.com

Market Cap: $151 billion

Qualcomm (NASDAQ:QCOM) is a mobile technology firm with a huge patent portfolio and consistent earnings power. Analysts forecast $12.59 in EPS this year, up 47.4% over last year. And for next year they estimate 5% higher earnings, putting the stock on a forward P/E of just 10.2 times.

Moreover, the dividend of $3 per share is less than a quarter of the $12.59 earnings projected this year. It provides a 2.22% dividend yield at the May 16 closings price of $133.91.

Qualcomm has paid a dividend in each of the past 18 years. This makes it very likely that the company will keep doing this even if there is a recession.

So given its cheap valuation, high dividend yield, and consistent dividends, QCOM stock will likely do well over the year. It won’t hurt that Qualcomm is forecast to make higher earnings as well.

Owens Corning (OC)

two construction workers on a worksite

Source: Shutterstock

Market Cap: $9.0 billion

Owens Corning (NYSE:OC), an insulation, roofing and fiberglass company, is a value stock worth investing in. It is very cheap at 8 times forward earnings with a 1.5% dividend yield. This is on top of the earnings profile that Owens Corning has.

This year analysts project EPS of $11.68, 25.7% higher than last year. At $93.55 per share, as of May 13’s close, this puts the stock on a forward P/E multiple of just 8 times earnings. For 2023, earnings are forecast at $12.01, giving it a 7.8x earnings multiple. This is very cheap.

Moreover, OC pays a dividend of $1.40, just 12% of earnings. This makes it likely OC will keep paying its dividend as the payout ratio is so low.

Owens Corning has paid a dividend for the past seven years and has raised the dividend in each of those years. This makes the dividend very secure going forward.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2022/05/6-undervalued-dividend-stocks-with-growing-earnings-and-dividends/.

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