3 Profitable Dividend Stocks to Buy at Near-Lows


  • The markets have unfairly punished these undervalued dividend stocks and they will reprice higher.
  • Pfizer (PFE): Set for oncology leadership and trades at 13 times forward earnings.
  • Cisco Systems (CSCO): This technology giant is transforming into a recurring software business and yields 3.3%.
  • APA (APA): This energy stock yields 3.3% and is dirt cheap at 7 times forward earnings.
Undervalued Dividend Stocks - 3 Profitable Dividend Stocks to Buy at Near-Lows

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Undervalued dividend stocks present two return routes: price appreciation or dividend payments that add to income. As of this writing, the market has some attractive dividend opportunities you buy.

Indeed, several undervalued dividend stocks are near lows. Some deserve their underperformance due to their declining fundamentals. Buying them would be akin to catching a falling knife.

However, this article will focus on companies with significant upside potential. Yes, they are trading at lows due to short-term challenges, but the long-term growth prospects are intact. Moreover, their valuations are pricing the businesses for a decline, but this is not the case. These undervalued dividend stocks could rebound sharply with a slight multiple expansion.

As of this writing, these stocks trade at price-to-earnings below 15. Moreover, they pay a dividend yield above 3%, which gives you the patience to wait for price appreciation.

Pfizer (PFE)

Pfizer logo on Pfizer building. Pfizer is an American pharmaceutical corporation.
Source: Manuel Esteban / Shutterstock.com

Investors have turned too bearish on Pfizer (NYSE:PFE), leaving the stock in the bargain bin. Of course, the stock is paying for going all in on Covid-19 vaccines at the wrong time. That business has been a headwind, but the company is making concerted efforts to return to growth in other areas.

Due to poor vaccine demand and inventory writedowns, the company has had to reset earnings expectations. As a result, the market has punished PFE stock severely. However, this reaction has been overly pessimistic, forgetting that Pfizer has some exciting businesses.

Notably, last year, it completed the acquisition of Seagen, a leader in oncology. This acquisition positions the pharmaceutical company for success in cancer drugs over the next decade.

Furthermore, based on guidance, Pfizer is a bargain. On reporting Q1 2024 results, management raised guidance for non-GAAP diluted EPS to $2.15–$2.35. Thus, the stock is trading at 13 times forward earnings. That’s more than a 40% discount to the S&P 500’s valuation.

Even better, you earn a 6% dividend that’s likely to grow. The company has posted 13 consecutive years of dividend growth. Considering the valuation and dividends, Pfizer is one of the most undervalued dividend stocks.

Cisco Systems (CSCO)

the cisco (CSCO) logo on a wall
Source: Valeriya Zankovych / Shutterstock.com

This networking giant is one of the most undervalued dividend stocks to buy. At 13 times forward earnings and with a 3.4% dividend yield, it’s a no-brainer investment.

Traditionally, Cisco Systems (NASDAQ:CSCO) has been a cyclical business. The networking hardware business ebbs and flows with the business cycle. However, Cisco is undergoing a fundamental business transformation that the market is underappreciating.

Gradually, the revenue mix is leaning more towards software than hardware. On March 18, it closed the Splunk acquisition. With the combination, over 50% of total revenues will come from software. This means that a larger share of sales is recurring, which brings stability. It has become one of the largest software companies globally, with about $29.2 billion in annual recurring revenue.

Moreover, the stock has other catalysts. First, it fits the AI theme and will benefit as hyperscalers deploy its Ethernet solutions. Secondly, the enterprise networking market could stabilize after a slump in demand last year. These upside catalysts make Cisco Systems one of the most undervalued dividend stocks.

A 3.4% dividend yield is impressive for a technology company like Cisco. Lastly, with a 12-year dividend growth record and a low 38% payout ratio, there is a lot of potential for more hikes.


an Apache sign in front of company headquarters
Source: JHVEPhoto / Shutterstock.com

Although oil prices are resilient and hold above $80 per barrel, energy is still one of the most undervalued sectors. APA (NASDAQ:APA) is among the most undervalued dividend stocks in the sector at seven times forward earnings. Furthermore, it pays a quarterly dividend of 3.3% yield.

As of this writing, APA stock is trading at 2022 levels, presenting a compelling upside. The recent decline occurred because the market was displeased by the acquisition of Callon Petroleum. However, management sees significant synergies from the deal. They believe they can improve efficiency at Callon Petroleum wells and boost earnings.

Furthermore, the company has a diversified production portfolio across the U.S. Lower 48, North Sea, Egypt, Alaska and Suriname. This enables the company to adjust production based on geographical demand for oil and gas.

Wells Fargo is optimistic and maintains an “overweight” rating and $55 price target, presenting over 80% upside. Analyst Roger Read says the market is giving little credit to the potential of the Suriname oilfield. Moreover, he thinks that the synergy projections from the Callon deal are conservative.

This energy stock is one of the top undervalued dividend stocks. It could soar if the Callon Petroleum synergies exceed management’s expectations. Moreover, management is committed to returning 60% of free cash flow to shareholders.

On the date of publication, Charles Munyi 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.

Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.

Article printed from InvestorPlace Media, https://investorplace.com/2024/05/3-profitable-dividend-stocks-to-buy-at-near-lows/.

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