- Down markets have investors looking for income from dividend stocks. All the better if those names also offer growth potential.
- Lowe’s (LOW) – The home improvement market continues to grow as does this company’s dividend.
- Walgreens Boots Alliance (WBA) – An attractive price-to-earnings ratio and reliable dividend is a prescription for income-minded investors.
- Target (TGT) – A loyal customer base and strong fundamentals makes this company’s dividend a rock-solid choice.
- Microsoft (MSFT) – With a dividend to go along with solid growth, this company shows that some tech stocks can still offer good value.
- 3M Corp (MMM) – This industrial stock also gives investors exposure to disruptive technology.
- Chevron (CVX) – One of the best-in-class energy stocks gives your portfolio growth and income.
- Cummins (CMI) – An industrial stock that’s showing slow, but steady growth.
I’m writing this as investors are digesting the April CPI numbers. Needless to say, volatility will be the norm for some time to come. There’s one group of equities that have always rewarded investors in down markets. That would be dividend stocks. And in this market, we’re looking at undervalued dividend stocks.
Dividend stocks are worthy of a place in investors’ portfolios at any time. Yet, at times when investors are seeking growth stocks, these stocks can get overlooked. There’s a reason for that. These companies make it a point to set aside a portion of their earnings to pay a cash dividend to investors. Generally, the return on growth stocks will outpace the dividend.
But when the market is correcting, as it is now, dividend stocks give investors the opportunity for passive income regardless of how the stock is performing. If investors reinvest those dividends, it can help to offset losses without having to put additional capital at risk. Here are seven undervalued dividend stocks. This means you may get a little growth to go along with a nice dividend.
|LOW||Lowe’s Companies, Inc.||$194.00|
|WBA||Walgreens Boots Alliance, Inc.||$43.55|
The first of my undervalued dividend stock is Lowe’s (NYSE:LOW). If you think the best days for home improvement stocks are behind them, I have a statistic for you. According to Global Market Insights, the U.S. home improvement market is expected to grow at a compound annual growth rate (CAGR) of over 4% through 2027. Part of that reason is because the average U.S. home is 37 years old.
That leaves plenty of meat on the bone. But to be fair, LOW stock is down 27% in 2022. That puts it near a 52-week low.
However, the reason why you’ll want to consider the stock is because of the dividend which currently pays out $3.20 a share per year. The dividend yield itself is around 1.7% which by itself is not overwhelming. But the company has paid a dividend in each of the last 46 years. That kind of reliability is music to dividend investors’ ears.
Walgreens Boots Alliance (WBA)
Growth investors abandoned Walgreens Boots Alliance (NYSE:WBA) a long time ago. But investors with a long position in WBA stock have been rewarded with a dividend that has gone up for the last 46 years.
The retail pharmacy chain has been making significant changes to capture market share in a highly competitive market. One of the key improvements is the installation of full-service health clinics in select locations. The company’s transition to becoming an integrated healthcare provider couldn’t have come at a better time as the pandemic gave consumers an in-person alternative to their doctor’s office.
Some analysts are concerned about the growth of the business in a post-vaccination world. But much of that concern is already priced into the stock which hasn’t done a whole lot since the onset of the pandemic. However, with a P/E ratio right around 6, WBA stock has an attractive valuation to go along with that reliable dividend.
With a P/E ratio of 15.6, Target (NYSE:TGT) is trading right around its sector average. TGT stock is a dividend king. It’s increased its dividend in each of the last 51 years. And rock-solid fundamentals means the dividend is in no danger. For example, in the last quarter alone, the company generated nearly $2 billion in free cash flow (FCF).
Target remains a cult brand to its loyal customers. This allows the company to avoid getting into the price wars that can bedevil this sector. And the company’s early pivot to the omnichannel model turned out to be a savvy move during the pandemic.
The company is showing strong growth in its digital business that will help the company stay top-of-mind for those everyday items that consumers will still need to purchase.
The next company on my list of undervalued dividend stocks proves that you don’t have to stay away from the tech sector to find a reliable dividend. In fact, Microsoft (NASDAQ:MSFT) gives investors elements of both growth and value stocks.
On the growth front, Microsoft was a pandemic winner with its Teams collaboration software. And the company is continuing to grow its cloud business as the pandemic moves into the endemic phase. Plus, the company, which is already a player in the gaming sector with its Xbox, will become an even larger player if its deal to acquire Activision Blizzard (NASDAQ:ATVI) gets approved.
However, the company also delivers great value for income-oriented investors. The dividend is $2.48 per share, which calculates to a yield of only 0.95%. However, the company has increased its dividend in each of the last 20 years. Plus, among tech stocks a 27-plus P/E ratio gives MSFT stock an appropriate valuation.
3M Corp (MMM)
3M Corp (NYSE:MMM) has taken investors on a roller coaster ride since it reported earnings on April 26. The company continues to expect supply chain disruptions. And those disruptions are likely to weigh down earnings for the remainder of the year.
That’s all the bearish sentiment that analysts have needed to initiate a sell-off.
However, like many stocks on this list, MMM stock is appropriately valued at around 15x earnings and it has a rock-solid dividend. Not only does the stock have an impressive dividend yield of about 4%, the annual dividend is $5.96 per share and has been increasing for 65 years.
With dividend performance like that, it’s well worth their while for investors to buy and hold shares of 3M while the market finds its footing.
Analysts give MMM stock a consensus price target that gives it about 16% growth. That seems achievable and even if the stock lands somewhere in the high-single digits it would likely outpace the market.
Cyclical stocks typically pay dividends to reward investors at times when the stock is underperforming the market. Some good examples of this come from the energy sector. And that brings me to Chevron (NYSE:CVX) which is a best-in-class play among oil and gas stocks.
CVX stock is up 39% in 2022. The company posted a double beat when it reported earnings on April 29. In that report, the company announced it had increased production by 10% and expected to be producing between 700,000 to 750,000 barrels of oil by the end of the year.
And Chevron is also a play on renewable fuels. The company is heavily investing in renewable natural gas, renewable diesel and sustainable aviation fuel.
As for its dividend, Chevron pays an annual dividend of $5.68 which calculates to a 3.38% dividend yield. The company has also increased its dividend for 35 consecutive years.
Last on my list of undervalued dividend stocks is Cummins (NYSE:CMI). The company designs and manufactures power systems for trains, heavy machinery, buses, heavy-duty trucks and more. Like many industrial stocks, there isn’t a lot happening with Cummins. However, the company has been reinvesting its capital and getting a decent rate of return.
The stock is currently trading at an appropriate valuation and it has a consensus “buy” rating from the analysts covering the stock. The price target gives CMI stock a 32% upside from its current level. And the dividend yield was briefly over 3% and sits at 2.88% at the time of this writing. The company has increased its dividend for the last 17 years.
On the date of publication, Chris Markoch did not have (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.