With the indices trading near all-time highs, there is a temptation to remain invested in high-flying growth stocks. Several penny and meme stocks also look interesting for multibagger returns at the blink of an eye. However, even amidst the bullish outlook, it’s important to be cautiously optimistic.

There are phases of the market where the focus should entirely be on wealth creation. There are other times when the focus should shift to wealth preservation. Currently, it’s time for wealth preservation and one strategy is to consider exposure to undervalued dividend stocks.

This column focuses on three stocks that are undervalued and provide a healthy dividend yield. Backed by positive business developments, a rally from their current oversold levels seems likely for these stocks.

Therefore, the total return from these ideas can be robust in the next two to three years. Let’s discuss the business and industry factors to be bullish on these undervalued dividend stocks.

Altria Group (MO)

After an extended phase of correction, Altria (NYSE:MO) stock has rallied by 18% year-to-date. However, the 8.21% dividend yield stock still trades at an attractive forward P/E of 9.4x. I therefore expect the positive stock momentum to sustain.

It’s worth noting that the rally in the recent past has been backed by positive business outcomes. Last month, NJOY received approval from the U.S. Food and Drug Administration (FDA) for its menthol vapor products. It’s the “the first and only menthol e-vapor products authorized by the FDA to date.”

The company has also made a submission with the U.S. FDA for its “innovative ‘on! PLUS’ oral nicotine pouch products.” It’s worth noting that Altria’s oral tobacco product has already been gaining market share in the U.S. As the non-smokable segment gains growth traction, MO stock is likely to trend higher.

I must add here that the smokable business remains the cash flow machine. Free cash flow from the smokable segment will support aggressive investment towards business transformation.

Vale (VALE)

Vale (NYSE:VALE) is possibly among the most undervalued industrial commodity stocks to buy. After a correction of 24% year-to-date, VALE stock trades at a forward P/E of 5.3x and offers a generous dividend yield of 9.5%.

Global macroeconomic headwinds are a concern for this industrial commodity company. However, it’s likely that expansionary policies will be pursued by central banks in all major economies. This is likely to support growth and translate into upside for commodities. It’s therefore a good time to buy VALE stock.

An important point to note is that Vale reported iron ore production of 70.8mt in Q1 2024. This was the highest Q1 production since 2019. At the same time, copper production increased by 22%. The operational performance for Q1 was therefore strong and Vale reported an adjusted EBITDA of $3.5 billion.

With the prospects of higher commodity prices in the coming quarters, I expect upside in EBITDA and cash flows. Vale will have higher financial flexibility to invest in metals like copper and nickel that will support global energy transition.

Aker BP ASA (AKRBF)

Aker BP ASA (OTCMKTS:AKRBF) stock is a hidden-gem that’s undervalued due to two reasons. First, the stock trades in the OTC exchange and has lower visibility. Further, oil has been subdued in the last 12 months on the back of macroeconomic headwinds. However, with rate cuts impending, I expect oil to trend higher and AKRBF stock is likely to witness a sharp reversal rally. It’s also worth noting that AKRBF stock offers an attractive dividend yield of 9.27%.

One reason to like Aker BP is a healthy reserves portfolio. As of 2023, the oil & gas company reported 2P and 2C reserves of 1,716mmboe and 809mmboe respectively. Robust reserves, aggressive capital investments, and a track record of acquisitions, provides steady production upside visibility.

At the same time, Aker BP has low breakeven assets. The full portfolio break-even is in the range of $35 to $50 per barrel. Therefore, even if oil is at $80 per barrel, the free cash flow visibility is robust. This will ensure that dividends sustain and the company can maintain its investment grade balance sheet.

On the date of publication, Faisal Humayun 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.